Executive Summary / Key Takeaways

• Sabre Corporation is undergoing a significant transformation, strategically divesting its Hospitality Solutions business to accelerate debt reduction and sharpen focus on its core Travel Solutions segment (airline IT and travel marketplace).
• Despite a softer near-term GDS industry outlook, Sabre is reaffirming its expectation for double-digit air and hotel B2B distribution bookings growth in 2025, driven by the implementation of previously signed commercial wins and momentum in its multi-source content and digital payments offerings.
• The company's technology transformation, including extensive cloud migration and AI integration (like Google (GOOGL)'s Gemini), is yielding cost efficiencies and enhancing product capabilities (SabreMosaic, multi-source platform), positioning it for future growth and competitive differentiation, particularly in B2B segments.
• While Q1 2025 results showed modest year-over-year improvements in adjusted EBITDA and margin, reflecting cost management and initial benefits from growth strategies, the full financial impact of strategic shifts and commercial wins is heavily weighted towards the second half of 2025.
• High debt levels remain a key challenge, but the planned use of Hospitality Solutions sale proceeds (approx. $960 million net) to pay down debt is expected to significantly improve the leverage profile, supporting the target of greater than $200 million in pro forma free cash flow for 2025.

Reshaping the Travel Technology Landscape

Sabre Corporation, a long-standing technology provider powering the global travel industry, is at a pivotal juncture. Forged from a take-private transaction in 2007, the company has historically operated through two primary segments: Travel Solutions, its global business-to-business travel marketplace and airline software arm, and Hospitality Solutions, offering software for hoteliers. The COVID-19 pandemic profoundly impacted Sabre, necessitating significant cost reduction efforts and accelerating a strategic technology transformation, including a major migration to the cloud.

Today, Sabre is actively reshaping its portfolio to navigate a dynamic travel ecosystem. The recently announced definitive agreement to sell the Hospitality Solutions business for approximately $1.1 billion in cash marks a decisive step. This divestiture, expected to close by the end of the third quarter of 2025, is strategically aimed at accelerating debt reduction, optimizing the company's portfolio, and focusing resources on its core Travel Solutions business, which encompasses airline IT and the travel marketplace platforms. While Hospitality Solutions has shown strong momentum, with revenue increasing 8% year-on-year in Q1 2025 driven by SynXis transaction volume growth and management targeting nearly $70 million in adjusted EBITDA for 2025 (pre-sale), the sale underscores Sabre's commitment to deleveraging and concentrating investment in areas management believes offer the most compelling long-term growth potential.

The Travel Solutions segment, the future core of Sabre, operates a global marketplace connecting travel suppliers (airlines, hotels, etc.) with travel buyers (agencies, corporations). Revenue here is largely transaction-based, tied to bookings and usage of its SaaS and hosted systems. This model, while resilient in periods of pricing volatility, remains highly sensitive to overall travel volumes, which can be impacted by macroeconomic conditions, geopolitical events, and other disruptions.

A Foundation of Technology and Innovation

At the heart of Sabre's strategy lies its technology stack and a commitment to innovation. The company has completed a significant technology transformation, migrating over 99% of its compute capacity to the cloud. This initiative has yielded over $150 million in cost benefits compared to both 2019 and 2023, establishing a more efficient operational foundation.

Building on this, Sabre is leveraging advanced technologies, including artificial intelligence (AI) and generative AI (GenAI), often in partnership with Google. AI is being deployed to enhance productivity in engineering, product quality, and customer service. More strategically, AI is embedded in new product offerings designed to modernize travel retailing.

A key technological differentiator is Sabre's multi-source platform. This platform is designed to seamlessly aggregate and offer content from various sources – traditional EDIFACT, New Distribution Capability (NDC), and low-cost carriers (LCCs) – through a unified interface. This provides travel buyers with comprehensive content and workflow efficiency, while offering airlines global scale and dynamic pricing capabilities. Sabre is actively expanding its NDC integrations, having 38 live airline connections as of Q1 2025, positioning itself as a leading aggregator in this evolving space. The multi-source platform is expected to drive incremental NDC and LCC volumes, contributing to future growth.

Another critical innovation is SabreMosaic, the company's next-generation offer and order-retailing platform for airlines. Designed to be modular and PSS-agnostic, SabreMosaic aims to revolutionize airline retailing by enabling dynamic creation, selling, and delivery of personalized offers, including ancillaries and third-party services. While the full "order" functionality is a longer-term development effort requiring significant airline IT transformation, Sabre is seeing strong traction with the AI-powered "offer" components, such as the Offer Management suite of IQ products, which help airlines optimize revenue. Recent commercial wins for SabreMosaic components include Aeromexico, Avelo, and GOL, following foundational wins in 2024.

In Hospitality Solutions (prior to the sale announcement), the SynXis suite included SynXis Retailing, which enables hoteliers to personalize offers and drive ancillary sales (seeing over 5x increase in ancillary sales in early results), and SynXis Pay, a new solution integrating numerous payment methods. While these specific products will be part of the divested business, the underlying technological capabilities and the strategic intent to use technology for enhanced retailing and efficiency are indicative of Sabre's broader approach.

The strategic "so what" of these technological investments is clear: they are intended to create a stronger competitive moat by offering differentiated, efficient, and intelligent solutions that resonate with the evolving needs of airlines and travel buyers. By enabling comprehensive content access (multi-source), modern retailing (SabreMosaic), and operational efficiency (cloud, AI), Sabre aims to drive market share gains and improve profitability over the long term.

Performance Reflecting Transition and Strategy

Sabre's recent financial performance reflects a business in transition, balancing ongoing market recovery with strategic execution and cost management. In the first quarter of 2025, total revenue was $776.6 million, roughly flat compared to $782.9 million in Q1 2024. This was primarily influenced by a 2% decrease in Travel Solutions revenue, driven by a 3.2% decline in air distribution bookings and a 6% decrease in IT Solutions revenue (impacted by prior de-migrations). Hospitality Solutions provided a bright spot, with revenue increasing 8% year-on-year.

Despite the relatively flat top-line, adjusted EBITDA saw a 5% increase year-on-year to $150 million in Q1 2025, resulting in a 110 basis point improvement in adjusted EBITDA margin to 19.3%. This margin expansion was primarily driven by lower technology costs (down 12% year-on-year, benefiting from cloud migration savings and labor cost reductions) and effective cost management, which offset the impact of lower revenue and increased incentive consideration in Travel Solutions (up 4% year-on-year due to higher rates and transaction mix). Gross margin, however, decreased by 190 basis points, partly due to upfront costs associated with onboarding new agency business ahead of volume realization and the impact of lower IT Solutions revenue. Management expects this gross margin pressure to be transitory.

Liquidity remains a key focus. As of March 31, 2025, Sabre held $651.1 million in cash and cash equivalents. Total outstanding debt stood at $5.118 billion (net of costs/discounts). The company has actively managed its debt profile through refinancings in 2023 and 2024, extending maturities. Notably, the $183 million of 2025 Exchangeable Notes were settled with cash in April 2025, and the $23 million of 7.38% Senior Secured Notes also matured in September 2025. The planned use of the approximately $960 million net proceeds from the Hospitality Solutions sale primarily to pay down debt is expected to significantly reduce leverage, with management targeting a nearly full turn reduction in net debt-to-EBITDA, ending 2025 at approximately 5.4x on a pro forma basis (down from ~6.3x pre-transaction). This deleveraging is critical for improving financial flexibility and reducing future interest expense, which increased 4% year-on-year in Q1 2025 due to higher rates on existing debt.

Cash flow from operations was negative in Q1 2025, with $81 million used, reflecting typical seasonality, lower revenue, and a pension plan contribution, partially offset by lower interest payments. Free cash flow was negative $98.5 million. However, management expects positive free cash flow in the remaining quarters of 2025, targeting greater than $200 million for the full year on a pro forma basis, benefiting from the expected EBITDA growth and reduced cash interest payments post-Hospitality sale.

Outlook and the Path Ahead

Sabre's outlook for 2025 is characterized by cautious optimism, balancing a softer near-term industry backdrop with strong expectations for growth driven by strategic initiatives. Management has adjusted its assumption for full-year 2025 GDS industry growth from flat to nominal to down 1% to 2%, acknowledging recent airline traffic softness and capacity adjustments.

Despite this, Sabre is reaffirming its expectation for double-digit air and hotel B2B distribution bookings growth for the full year 2025. This growth is heavily predicated on the realization of volumes from significant commercial wins signed in 2024 that are currently being implemented. Management expects air distribution bookings growth to accelerate meaningfully throughout 2025, projecting at least 20% year-on-year growth in the second half of the year (high-teens in Q3, above 20% in Q4). This acceleration is expected to provide strong momentum heading into 2026. The revenue impact from the softer market is expected to be largely offset by outperformance from growth strategies, including new content coming onto the multi-source platform, momentum in the digital payments business (which saw gross spending increase 30% in Q1 2025), and a more profitable customer mix.

For the second quarter of 2025, Sabre expects pro forma revenue growth in the low-single digits and pro forma adjusted EBITDA of approximately $140 million, with positive pro forma free cash flow. For the full year 2025, on a pro forma basis (excluding Hospitality Solutions), the company expects high single-digit year-on-year revenue growth, adjusted EBITDA of greater than $630 million, and free cash flow of greater than $200 million. This pro forma EBITDA figure reflects the removal of approximately $70 million in expected Hospitality Solutions adjusted EBITDA, offset by approximately $65 million in cash interest savings and $5 million lower CapEx.

The successful execution of the implementation ramp for the signed commercial wins is critical to achieving this outlook. Management expresses confidence in their ability to deliver on these implementations, citing extensive historical experience.

Competitive Landscape and Positioning

Sabre operates in a highly competitive travel technology market, facing direct competition from major players like Amadeus (not publicly traded in the US, but a key global GDS competitor), Expedia Group (EXPE), Booking Holdings (BKNG), and Tripadvisor (TRIP), as well as indirect competition from technology giants like Google and emerging tech startups.

Historically, competition in the GDS space centered around content breadth and incentive fees paid to travel agencies. Sabre has consistently gained air distribution share, expanding its year-on-year share for seven consecutive quarters as of Q3 2024. Management believes its offerings are resonating, enabling it to outperform its main GDS competitors.

The competitive dynamic is evolving, driven by technological advancements and suppliers seeking greater control over distribution. Airlines are pushing NDC and direct channels, while travel buyers demand access to all content sources through efficient workflows. Sabre's strategic response, particularly the development of its multi-source platform and SabreMosaic, aims to address these shifts. By aggregating NDC, LCC, and traditional content and offering advanced retailing capabilities, Sabre seeks to differentiate itself based on technology and value proposition, rather than solely on incentive fees. Management believes its multi-source platform offers industry-leading seamlessness and that SabreMosaic is a highly advanced offer and order platform.

While direct quantitative comparisons across all competitors' niche segments are challenging, publicly available data for larger online travel players like TICKER:EXPE and TICKER:BKNG highlight their scale and profitability advantages. In Q1 2025, TICKER:EXPE reported 5% revenue growth and a 15% operating margin, while TICKER:BKNG saw 12% revenue growth and a 30% operating margin. In contrast, Sabre's Q1 2025 revenue was flat, with a 13% operating margin (pre-corporate unallocated). These comparisons underscore the financial strength of large OTAs and the competitive pressure on technology providers. Sabre's higher debt levels (TTM Debt/Equity of -3.80, post-sale expected ~5.4x Net Debt/EBITDA) also place it at a financial disadvantage compared to lower-leveraged competitors like TICKER:TRIP (0.96 Debt/Equity), TICKER:EXPE (4.19 Debt/Equity), and TICKER:BKNG (-4.25 Debt/Equity).

However, Sabre's focus on the B2B segment, particularly its strong position in corporate travel (volumes up 3-4% in Q3 2024, outperforming the industry and its competitors in this specific niche), and its investments in core airline IT solutions provide areas of relative strength. The strategic divestiture aims to streamline operations and focus resources on these core areas where Sabre believes it can compete effectively through technological differentiation and established customer relationships.

Risks and Challenges

Despite strategic progress, Sabre faces significant risks. The high dependence on global travel volumes makes the business vulnerable to macroeconomic downturns, geopolitical instability (such as the ongoing conflicts in Ukraine and the Middle East), and other unforeseen events. The recent leveling off of industry air distribution volume growth and specific softness in areas like APAC group bookings and U.S. Government/Military travel in Q1 2025 highlight this sensitivity.

High debt levels remain a material risk. While the Hospitality Solutions sale proceeds will significantly reduce debt, the company will still carry substantial leverage. This increases vulnerability to adverse economic conditions and rising interest rates (approximately 48% of debt is variable), potentially limiting financial flexibility and requiring a significant portion of cash flow for debt service. The ability to refinance future maturities on favorable terms depends on market conditions and Sabre's financial performance. Debt covenants also impose restrictions on business operations.

Technological risks are inherent in the business. The reliance on complex IT systems and third-party providers exposes Sabre to potential failures, capacity constraints, and business interruptions. Cybersecurity threats, including data breaches and ransomware attacks, are persistent risks that could damage reputation, lead to significant costs, litigation (as seen with the Q3 2023 data extraction incident), and regulatory penalties. The integration of emerging technologies like AI also introduces new potential vulnerabilities and ethical/regulatory challenges.

Competition is intense and evolving. Pricing pressure from travel suppliers, the shift towards NDC and direct channels, and the scale and resources of larger competitors like TICKER:EXPE and TICKER:BKNG could impact Sabre's market share and profitability. The success of Sabre's growth strategies, particularly the adoption of its multi-source platform and SabreMosaic, is crucial for maintaining competitiveness.

Other risks include potential liabilities from ongoing legal and tax proceedings (such as the Indian tax litigation), unfunded pension obligations requiring future cash contributions, and risks associated with international operations and compliance with varying regulations (including sanctions and digital services taxes).

Conclusion

Sabre Corporation is undertaking a significant strategic transformation, highlighted by the planned divestiture of its Hospitality Solutions business. This move is designed to address key challenges, primarily its substantial debt burden, while sharpening focus on its core Travel Solutions segment. The expected use of sale proceeds for debt reduction is a critical step towards improving financial health and increasing flexibility.

The investment thesis hinges on Sabre's ability to capitalize on its strategic growth initiatives, particularly the implementation of signed commercial wins and the adoption of its modern technology platforms like the multi-source platform and SabreMosaic. Despite a challenging and uncertain macro environment impacting overall industry volumes, management's confidence in achieving double-digit distribution bookings growth in 2025, driven by these specific initiatives, is a key positive indicator. The expected acceleration of growth in the second half of the year and the target for significant pro forma free cash flow generation in 2025 are crucial milestones to monitor.

While competitive pressures and technological disruption are persistent forces, Sabre's investments in AI-infused, modular, and comprehensive solutions aim to position it favorably, particularly in the B2B and corporate travel niches where it holds relative strength. The success of these technological differentiators in driving tangible customer value and market share gains will be paramount. Investors should closely watch the execution of the Hospitality Solutions sale, the debt reduction process, the ramp-up of commercial implementations, and the continued progress in realizing cost efficiencies and technological advancements as Sabre seeks to reshape its future amidst a dynamic global travel landscape.