Global Business Travel Group, Inc.

Hello, and welcome to the American Express Global Business Travel first quarter 2022 earnings conference call. This morning, we issued an earnings press release, which is available on our website at investors.amexglobalbusinesstravel.com. The slide presentation, which accompanies today's prepared remarks, is also available on the Amex GBT Investor Relations webpage. We would like to advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events including the duration and effects of COVID-19, industry trends, cost savings, and acquisition strategies, 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. For information on these and other risks and uncertainties, this contained in our earnings release issued this morning and APSG's definitive proxy statements prospectus filed on May 5th. 2022. Throughout today's call, we will be presenting certain non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. All references during today's call to such non-GAAP financial measures have been adjusted to exclude certain items. Definitions of these terms in the most directly comparable GAAP measures and reconciliation for non-GAAP measures are available in the appendix of this presentation and in the earnings release. Participating with me on the call today are Paul Abbott, our Chief Executive Officer, and Martine Giroux, our Chief Financial Officer. And with that, I'll now turn the call over to Paul. Paul?

Thank you very much, Barry, and thank you to all of you for joining us today. I'm going to start my section with the first quarter 2022 highlights. We reported first quarter 22 revenue of $350 million up 179% over Q1 2021 and adjusted EBITDA was negative 28 million. First quarter adjusted EBITDA was actually in line with our plan, despite the negative impact of Omicron at the beginning of the first quarter. And this is due to the continued cost discipline throughout the first quarter and also the strong recovery trends we saw in March. Transaction recovery for the first quarter reached 46% of 2019 levels and revenue recovered to 50%. As I will discuss in more detail, we continue to see strength in the recovery of business travel, which supports an increase in our full year 2022 expectations. As a result, we are raising our 2022 guidance to approximately 1.75 billion in revenue and 75 million to 85 million of adjusted EBITDA. This increased guidance is approximately 150 million above our previous revenue guidance, and 68 to 78 million above our previous adjusted EBITDA guidance. And these positive trends give us further confidence that we are on track to meet our 2023 financial objectives. The business travel recovery certainly has strong momentum. Transaction recovery averaged across the last three weeks of April 2022. And that's to normalize for the timing of Easter in 2022 versus 2019. For that three-week period, transaction recovery averaged 72% of 2019 levels, which represents an 11 percentage point improvement since the last week in March. And as you've likely heard from our peers in the industry, expectations for continued strong recovery trends have been echoed by many of the airlines and other travel suppliers. Now, we believe that Amex GBT has a significant runway for growth. Our pro forma new wins really highlight this. The value of our new wins over the last 12 months through the end of April increased to $3.9 billion, representing 10% of our 2019 pro forma TTV. F&E transaction recovery has been particularly strong, with recovery in the last three weeks of April now reaching 80 percent of 2019 levels driven both by a strong recovery but also the impact of our new wins momentum in the sme segment overall year to date some of our major new wins include honda motors europe novum radium technologies and the ferraro group very importantly our customer retention rate over the last 12 months through the end of April also remains very strong at 95%. As you've heard previously, we have two very important levers for margin expansion. And we are on track to deliver on both of these metrics, 109 million in agency synergies and 235 million of permanent cost savings. We're also on track to exceed the forecasted 25 million of Agencia synergies in 2022. Our 235 million permanent cost savings have already been fully actioned. And our continued cost discipline in Q1 is in line with the expectations needed to deliver on our 2023 financial forecast. So let me explain why we're so confident in the business travel recovery that we're seeing. Transaction volumes, as I mentioned, have reached 72% of 2019 levels, and this represents an 11 percentage point improvement versus the last week in March. And this trend reflects the comments that we shared on our investor day. It's driven by companies returning to travel and the easing of COVID-related travel restrictions. And we believe the momentum will continue to accelerate as more businesses continue to reopen offices and the additional COVID-19 related restrictions are removed. It's very clear that customers definitely recognize the value of in-person meetings to grow their business, to strengthen relationships, to motivate and engage teams, to drive creativity and innovation. It's also becoming clearer that more distributed teams increase the need for business travel. More distributed teams increase the need to bring people together, to collaborate, to innovate, motivate, and learn. And we're seeing this dynamic play out in our meetings and events business, where demand for smaller meetings has been particularly strong. So let's look at the recovery trends in more detail. And you'll see that SME customers continue to lead the recovery versus global multinationals. Smaller companies have generally been more agile and returned to travel more quickly. However, we are beginning to see a change. Larger companies now really accelerating in April. Global multinational recovery increased eight points versus the end of March. And you'll see a similar dynamic in domestic and international travel. Domestic recovery was outpacing international recovery because of the COVID related restrictions on many international routes. However, you'll see this changing as restrictions are removed. Domestic recovery was up seven points in April, international recovery up 15 points versus that last week in March. So now for the first time, as of that last three week period in April, international recovery is actually at the same level as domestic recovery. And again, you can see these trends play out in the regional recovery. Singapore and Australia, for example, recently reduced COVID related restrictions. And that, as you can see, has resulted in a significant increase in our Asia Pacific recovery. We have a significant runway for growth. We are the leader in a very large and fragmented 1.4 trillion industry. And we believe our differentiated customer value proposition continues to drive share gains and strengthen our leadership position. As of April 2022, new wins increased to 3.9 billion over the last 12 months, representing 10% of our 2019 TTV. And we are consistently gaining share, as evidenced by our 2.5 average win-loss ratio since 2015. which means effectively for each dollar of business we lose, we gain $2.50. We also continue to build scale and momentum in the SME space. As a reminder, SME is the largest, fastest growing and most profitable customer group and represents a huge opportunity for growth for Amex GBT. Not only is SME recovering the fastest, but we also continue to see the impact of our SME new wins in this recovery rate. And as previously mentioned, that recovery rate reached 80% of 2019 levels in the last three weeks of April. And of course, equally important, we continue to have a stable and loyal customer base with 95% customer retention rate over the last 12 months. Our market-leading customer value proposition is also a critical part of our growth opportunity, delivering unrivaled value, choice, and experience, always supported by the powerful backing of Amex GBT. And our product and technology investments, they play a significant role in the share gains that we're delivering and our business momentum. And let me just highlight some of the product and technology achievements from the first quarter. Our AMEX GBT preferred extras content and savings. The unique negotiated rates that we have on our platform are now live in the Agencia platform, delivering unrivaled value to Agencia customers. We launched new sustainable meetings and event solutions, giving customers more choice, the choice to host carbon neutral events. We launched an AI pilot on chat, to enhance the digital experience for travelers. We released a new hotel rate display in Neo, our digital travel platform, which provides travelers with an even more consumer-like retailing experience. Additionally, also on Neo, we launched a green air travel filter, which allows travelers to be able to sort their flight options by carbon emissions. All of these new features are helping to deliver an unrivaled experience for our travelers. And finally, the powerful backing of American Express GBT. This is how we help our customers achieve their goals. We developed an innovative AI tool to help Agencia customers optimize their travel approval process. We also launched a new Agencia API Developer Center allowing customers to connect and drive efficiencies in their travel and expense programs. So now Martine is going to review how we are further accelerating our earnings power through the agency of synergies and our permanent cost savings, as well as review the Q1 financial results in more detail and our revised increased guidance for the full year. Over to you, Martine.

Thank you, Paul, and hello, everyone. Beyond the industry recovery, we are on track to add almost $350 million of adjusted EBITDA versus the 2019 baseline through two key levers. The first of those levers is Egentia Synergy. As you know, Egentia is the leading digital platform for managed travel and was the fourth largest TMC when we acquired them back in November of 2021. This strategic acquisition significantly enhances GBT platform and capability to accelerate growth in very important SME space. Consistent with our M&A track record, we expect this acquisition to result in $109 million of total synergies. $75 million are on the revenue side, driven by revenue harmonization, and $34 million are on the cost side, primarily driven by real estate consolidation. The integration of Agencia is proceeding as planned, and we expect to exceed the forecasted 25 million of synergies for 2022. Our revenue harmonization is on track. GBT preferred extras are already live on the Agencia platform. And 13 office moves have been completed, which represents 50% of our targeted real estate savings. This, combined with our strong M&A execution track record, gives us confidence not only to exceed the $25 million of synergies expected for this year, but to deliver our longer-term expectation for $109 million of total synergies. The second lever driving margin expansion is our $235 million permanent cost savings program. These cost savings initiatives were fully executed in 2020 and 21. We completed 100% of the actions, and we have already realized 80% of the cost savings benefits coming from those actions. The remaining cost savings are related to efficiencies that will be realized as designs continue to recover. As travel recovery continues to progress, we expect to have higher incremental margins. In the first quarter of 2022, the adjusted EBITDA fall through on incremental revenue recovery was 72%, which is in line with the expectations needed to deliver on our 2023 forecast. Putting it together with our expected Agencia synergies and permanent structural cost savings, we have the opportunity to increase our adjusted EBITDA margin by up to 10 points at 100% industry recovery. Moving now to the quarterly results, and as a reminder, we closed the Agencia acquisition on November 1st, 2021. Therefore, our first quarter 2022 results include Agencia for the full quarter. We closed the first quarter with an overall 46% transaction recovery as compared to 2019 per forma agentia, with the pace of recovery significantly accelerating in March to 61%, exceeding our expectations. And as you heard from Paul, the momentum in travel recovery has continued with transactions reaching 72% of 2019 in the last three weeks of April. Stronger than anticipated recovery in March, combined with continued cost control, have allowed us to close the first quarter in line with our plan and fully offset the negative impact from Omicron in January and February at adjusted EBITDA level. In addition, we reached a very important milestone in March where we delivered positive adjusted EBITDA. Our total transaction value in the quarter increased 454% year over year to a total of $4.2 billion. Transaction growth was 382% year over year. Our first quarter revenue increased 179% to a total of $350 million. Our revenue yield, which is revenue over TTV, was 8% as compared to 17%. in the first quarter of 2021, which was impacted by the fixed component of our revenue over what was a very low volume base. Travel revenue was up 318% in the quarter and product and professional services revenue increased 45% in the quarter. Meetings and events revenue drove 40% of the 32 million increase in product and professional services as COVID-19 restrictions relaxed and demand for meetings rebounded strongly. Please remember that our products and professional services revenue has a higher portion of fixed revenue that doesn't fluctuate with TTV. Our adjusted EBITDA totaled negative 28 million, which is an improvement of 62 million year-over-year due to revenue growth partially offset by increased costs to support the rise in the volume of transactions. Adjusted operating expenses increased by 77% in the quarter as compared to a 179% increase in revenue. And free cash flow, defined as cash from operations, less capex, decreased $52 million to a total of a negative $175 million due to the cash utilized in building working capital back up as business recovery continued and increased capex, partially offset by reduction in operating loss. I will now comment on the first quarter results versus first quarter 2021 pro forma for the agency acquisition. Transaction volume was up 212%, and TTV improved by 314% as compared to the first quarter of 2021 pro forma. Revenue increased by 132%, and adjusted operating expenses increased at a much lower rate of 35%. Adjusted EBITDA improved by $129 million, which compares to $199 million improvement in revenue, or a fall through margin of 65%. Now let's talk about liquidity. We expect to have a strong liquidity position once the business combination closes, with liquidity of up to $1.6 billion pro forma for March 31st. And as you may recall, we refinanced a large portion of our debt in December of last year. And as part of that process, we obtained a new term loan facility that provided an incremental $400 million of financing, of which $200 million was undrawn as of March 31st. We also raised $335 million through our fully committed, upsized, and oversubscribed pipe, which is expected to close concurrently with a business combination. The refinancing and PI proceeds are intended not only to help manage through the continued recovery and for their growth agenda, which includes the agency integration, but also offset potential redemptions. Even under the most severe redemption scenario, we'll still expect to have over $800 million of available liquidity. As of March 31st, our pro forma net leverage ratio is a minus 0.7 times to plus 0.9 times, depending on redemption levels, and that is based off our 2023 adjusted EBITDA forecast. Now, our long-term net leverage target does remain two times with additional flexibility to increase by about a turn should we need to finance M&A activity. So we are confident in our liquidity position and we expect to turn free cash flow positive in 2023. Moving to guidance. Our solid first quarter performance and the very strong recovery trends we have seen give us confidence to raise our full year 2022 guidance. We raised our full year 2022 revenue guidance to approximately 1.75 billion and our adjusted EBITDA guidance to 75 million to 85 million. Our updated revenue guidance is approximately $150 million above our previous expectations and reflects a full year revenue recovery of 63% of 2019 pro forma revenue. That is a 5 percentage point higher than our previous expectations. And this is based on expectations for a balance of year transaction recovery of 72%. As you heard, we reported 46% transaction recovery in the first quarter, but our transaction recovery in the last three weeks of April reached 72%. So our assumptions are in line with the current trend. Our adjusted EBITDA guidance is $68 million to $78 million higher than our previous expectation, and we now expect an adjusted EBITDA margin of 4% to 5%. versus previous guidance for breakeven adjusted EBITDA. Over the balance of year, we expect an adjusted EBITDA fall through versus 21 of 68%. And again, fall through is defined as incremental adjusted EBITDA over incremental revenue as compared to 2021 pro forma for the agency acquisition. Now, this is about three percentage points higher than what we delivered in the first quarter, but we were operating with excess capacity given the Omicron impact that lasted through mid-February. Our revised guidance implies approximately $15 million of incremental adjusted EBITDA for each point of revenue recovery in the balance of year, and that is consistent with our prior guidance. So to sum it up, Despite Omicron, we delivered a very strong first quarter, supported by the continued long-term recovery of business travel, strong new sales momentum, and execution against our strategic initiatives. With this backdrop and a business travel recovery that has continued to strengthen through April and into May, our expectation for our full year 2022 financial results have increased, and underscore our confidence in achieving our 2023 forecast. We look forward to completing our transaction with APSG in the coming weeks and to continue to share our progress with you in the months and years ahead. Thank you very much for your interest.