Global Business Travel (GBTG) - 2023 Q4 - Annual Report

PART I Business GBTG is a leading B2B travel and expense software and services company, operating a global marketplace and client solutions - 2023 Key Financial Metrics | Metric | Value (in millions) | | :--- | :--- | | Total Transaction Value (TTV) | $28,200 | | Revenues | $2,290 | | Net Loss | $(136) | | Adjusted EBITDA | $380 | - The company operates a B2B travel and expense ecosystem through three main channels: the Amex GBT Marketplace for suppliers, client-facing travel and expense solutions, and GBT Partner Solutions for third-party travel management companies[21][22] - Since its formation in 2014, the company has invested approximately $1.6 billion in its product and platform and has expanded through strategic acquisitions, including KDS, HRG, Ovation Travel, and notably, the Egencia business from Expedia in 2021[22][23][24] - The Small and Medium-sized Enterprise (SME) segment is a key focus, representing approximately 49% of the company's TTV in 2023, aiming to accelerate penetration in this large and profitable market segment[39][102] - As of December 31, 2023, the company had approximately 19,000 employees worldwide with operations in 31 countries, representing about 90% of global business travel spend[25][141] Overview Key Factors Affecting Our Results of Operations - The global business travel industry was estimated at $1.4 trillion in 2023, growing at a CAGR of 4.4% from 2000-2019, outpacing real global GDP growth of 3.7%[28] - Approximately 40% of business travel spend in the U.S. and 36% in Europe was managed, indicating a significant growth opportunity in the unmanaged SME segment[30] Value Proposition - The company serves a diverse client base, with less than 40% of customer-driven revenue from its top 50 clients and no single client accounting for more than 2% of such revenue in 2023[38] - GBTG provides value to travel suppliers by offering efficient access to premium business travelers, who tend to have higher profitability due to higher-value bookings[41][42] Business Model - The company's business model is a self-reinforcing 'flywheel' where high-quality service attracts premium clients, which in turn attracts suppliers offering better content and savings, enhancing value and funding further investment[47][49] - Revenue is generated from Travel Revenues (fees from clients and suppliers) and Product and Professional Services Revenues (platform use, consulting), with the latter comprising 20% of total revenue in 2023[49][50] Technology - Since 2014, the company has invested approximately $1.6 billion in its product and platform, focusing on custom infrastructure, an omnichannel core platform, and seamless travel experiences[51][54] - The acquisition of Egencia significantly strengthened the company's digital and e-commerce capabilities, particularly for serving clients with a differentiated digital experience[58] Our Competitive Strengths - The company boasts a high-quality client base with a 96% retention rate in 2023 and an average tenure of approximately 15 years for its top 100 clients[69] - In 2023, 78% of bookings were made through digital channels (OBTs, mobile app, messaging), demonstrating a strong omnichannel service model[70] - The company's client base is uniquely valuable to suppliers, with an estimated average ticket value 40% higher than typical TMC bookings and over half of air travel TTV from first and business class[78] Our Growth Strategy - The company's growth strategy includes capitalizing on its technology platform, strengthening its position in the global and multinational segment, accelerating penetration in the SME market, and pursuing strategic M&A[95][97][99] - The company is actively evaluating and pursuing acquisition opportunities to expand operations, noting the business travel industry is highly fragmented with a large pool of potential M&A targets[96][106] - A key priority is driving earnings growth through productivity and automation, including leveraging AI and creating self-service and "co-pilot" solutions for travel counselors to enhance satisfaction and efficiency[107] Description of Certain Indebtedness - Senior Secured Credit Facilities (as of Dec 31, 2023) | Facility | Outstanding Principal (in millions) | Maturity Date | | :--- | :--- | :--- | | Senior Secured Term Loans | $1,372 | Aug 2025 / Dec 2026 | | Senior Secured Revolving Credit Facility | $0 drawn ($43 million available) | Sep 2026 | - The Senior Secured Credit Agreement contains various covenants, including a requirement to maintain at least $200 million in liquidity (unrestricted cash plus available revolver capacity) at the end of each calendar month[128] - As of December 31, 2023, the company was in compliance with all applicable covenants under the Senior Secured Credit Agreement[130] Government Regulation - Because American Express "controls" GBT for purposes of the Bank Holding Company Act (BHC Act), GBT is subject to supervision, examination, and regulation by the Federal Reserve, which could impact operations, acquisitions, and competitive position[155][26] - The company is subject to numerous global data privacy and cybersecurity laws, including GDPR in Europe and CCPA in the United States, which impose significant compliance obligations and potential fines for non-compliance[160][255] Risk Factors The company faces significant risks from travel volume volatility, competition, substantial debt, cybersecurity, and regulatory oversight - The company's revenue is highly dependent on the global travel industry, making it vulnerable to prolonged decreases in travel due to health crises, geopolitical conflicts, and economic downturns[173][176] - The company's substantial indebtedness under its Senior Secured Credit Agreement imposes significant operating and financial restrictions, which could limit its ability to respond to market changes or pursue growth opportunities[193][195] - Cybersecurity attacks or security breaches pose a significant risk, potentially leading to the loss or misappropriation of personal and proprietary information, which could result in litigation, regulatory penalties, and reputational damage[259][262] - Due to American Express's "control" under the BHC Act, the company is subject to Federal Reserve supervision, which could adversely affect its growth, operations, and ability to make acquisitions[286] - A material weakness in internal control over financial reporting was identified for the year ended December 31, 2023, which could harm the company and cause investors to lose confidence in its financial statements[307] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None Cybersecurity The company employs a risk-based cybersecurity program aligned with NIST principles, overseen by the Board's Risk Management and Compliance Committee - The company's cybersecurity approach is risk-based and aligned with National Institute of Standards and Technology (NIST) principles, integrated into its overall risk management system[317][318] - Governance is provided by the Board of Directors, directly and through its Risk Management and Compliance Committee, which receives regular reports on cybersecurity risks and mitigation efforts[323] - The Chief Information Security Officer (CISO), with over 25 years of experience, leads the assessment and management of cybersecurity risks and presents to the Risk Management and Compliance Committee on a bi-annual basis[324][325] Properties The company leases its corporate headquarters in London, UK, and other global offices, owning no real property - The company leases its corporate headquarters in London, United Kingdom, under a lease that expires on April 1, 2025[326] - The company does not own any real property and believes its current leased facilities are adequate for its ongoing needs[326] Legal Proceedings The company is not currently subject to any material legal proceedings or aware of any threatened material legal proceedings - The company is not currently subject to any material legal proceedings[327] Mine Safety Disclosures This item is not applicable to the company - None PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on the NYSE under 'GBTG,' with no cash dividends anticipated - The company's Common Stock is listed on the New York Stock Exchange under the symbol 'GBTG'[331] - The company has never declared or paid cash dividends and does not anticipate paying any in the foreseeable future, intending to retain earnings for business expansion[332] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations GBTG's 2023 revenue grew 24% to $2.29 billion, with TTV up 23% and Adjusted EBITDA increasing to $380 million - Key Operating and Financial Metrics (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | TTV | $28,192 | $22,968 | 23% | | Revenue | $2,290 | $1,851 | 24% | | Net loss | $(136) | $(229) | 41% | | Adjusted EBITDA | $380 | $103 | 269% | | Net cash from operating activities | $162 | $(394) | n/m | | Free Cash Flow | $49 | $(488) | n/m | - The company's financial results for 2023 show a strong recovery compared to 2022, which was still partially impacted by the Omicron variant of COVID-19 in the first quarter[342] Results of Operations - Revenue Breakdown (2023 vs. 2022) | Revenue Type (in millions) | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Travel Revenue | $1,827 | $1,444 | 26% | | Products & Professional Services Revenue | $463 | $407 | 14% | | Total Revenue | $2,290 | $1,851 | 24% | - Total operating expenses increased by 12% to $2.30 billion in 2023, a slower rate than the 24% revenue growth, indicating operating leverage, with cost of revenue rising 15% aligned with 19% transaction volume growth[361][367] - Interest expense increased 43% to $141 million in 2023, primarily due to a higher amount of outstanding term loan debt and higher interest rates[380] Liquidity and Capital Resources - Cash and Liquidity Position (as of Dec 31, 2023) | Item (in millions) | Value | | :--- | :--- | | Cash and cash equivalents | $476 | | Undrawn Revolving Credit Facility | $43 | - Net cash from operating activities improved by $556 million, from a use of $394 million in 2022 to a source of $162 million in 2023, driven by reduced net losses and favorable working capital changes[388][390] - Net Debt decreased from $919 million at year-end 2022 to $886 million at year-end 2023, as an increase in cash balance more than offset additional borrowings[401] - The company's long-term debt rating was upgraded to 'B+' with a 'Stable' outlook by S&P, reflecting market share gains and strong operating performance[405] Critical Accounting Policies and Estimates - Key critical accounting estimates include revenue recognition for supplier incentives, goodwill impairment testing, pension obligations, and the valuation of earnout derivative liabilities[413][414] - Goodwill is tested for impairment annually on December 31; for 2023, a quantitative test indicated that the fair value of each reporting unit exceeded its carrying value, resulting in no impairment[417][419][420] - The fair value of earnout share liabilities, remeasured each period, is determined using a Monte Carlo valuation method, a Level 3 input requiring significant assumptions about stock-price volatility and other factors[428][429] Quantitative and Qualitative Disclosure About Market Risk The company is exposed to interest rate and foreign currency risks, mitigating interest rate risk with $900 million in swaps - The company is exposed to interest rate risk on its variable-rate senior secured term loans; a hypothetical 100 basis point change in interest rates would impact annualized interest expense by approximately $5 million, after considering interest rate swaps[437][438] - To manage interest rate risk, the company has entered into interest rate swap agreements covering a total notional amount of $900 million of its debt, effectively fixing the benchmark rate on a portion of its term loans[276][438][439] - The company is exposed to foreign currency exchange rate risk as its revenues and expenses are denominated in various currencies, primarily U.S. dollars, British pounds, and Euros, but does not currently engage in foreign currency hedging[440][441] Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements and supplementary data, included in Item 15 - The financial statements required by this item are included in Item 15 of this Annual Report, beginning on page F-1[443] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness related to Egencia's outsourced processes, leading to an adverse auditor opinion - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective[446] - A material weakness in internal control over financial reporting was identified related to the Egencia business, stemming from a lack of oversight of outsourced revenue and procurement processes still performed by Expedia under a transition services agreement[448][450][451] - The company's independent registered public accounting firm, KPMG LLP, issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[448][492] - Remediation efforts are underway to integrate Egencia's key applications and processes into the company's legacy control environment, expected to be completed in 2024[452] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023 - No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during the fourth quarter of 2023[455] Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This item is not applicable to the company - Not Applicable PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for the 2024 annual meeting of shareholders[458] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2024 proxy statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for the 2024 annual meeting of shareholders[459] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the 2024 proxy statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for the 2024 annual meeting of shareholders[460][461] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2024 proxy statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for the 2024 annual meeting of shareholders[462] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2024 proxy statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for the 2024 annual meeting of shareholders[463] PART IV Exhibit and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including key corporate and financing agreements - This section contains the index to the consolidated financial statements, which begin on page F-1[466][482] - A list of all exhibits filed with or incorporated by reference into the annual report is provided, including key corporate and financing agreements[467][468][469] Form 10-K Summary The company has not provided a summary for its Form 10-K - None