Sabre Corporation
Q3 2014 Earnings Call Transcript

Published: 11 Nov 2014

[Operator:]

Good morning and welcome to the Sabre Third Quarter 2014 Earnings Conference Call. Please note that today’s call is being recorded and is also being broadcast live on the Internet on the Sabre corporate website. This broadcast is a property of Sabre. Any redistribution, retransmission or rebroadcast of this call in any form without expressed written consent of the company is strictly prohibited. I’ll now turn the call over to the Vice President of Investor Relations, Mr. Barry Sievert. Go ahead, sir.

[Barry Sievert:]

Thank you and good morning everyone. Thanks for joining us on our third quarter earnings conference call. This morning we issued an earnings press release, which is available on our website at investors.sabre.com. A slide presentation which accompanies today’s prepared remarks is also available during this call on the Sabre website. A replay of today’s call along with the slide presentation will be available on our website beginning this afternoon. Following today’s call we invite equity and debt investors with additional questions to follow-up with Investor Relations. Throughout today’s call certain revenue, earnings per share, adjusted EBITDA, gross profit, capital expenditures, and free cash flow amounts as well as other financial information that will be provided are from continuing operations and have been adjusted to exclude expenses and other gains and losses related to restructurings, amortization of the Expedia SMA incentive payments, the working capital impact of the Travelocity business model change, litigation and tax matters and certain other items. The most directly comparable GAAP measures and reconciliations are available in the earnings release and other documents posted on our website at investors.sabre.com. We would like to advise you that our comments contain forward-looking statements. These statements include, among others, the disclosure of our outlook including revenue, adjusted EBITDA, net income and earnings guidance, our expected segment results, our expectations of industry trends and various other forward-looking statements regarding our business. These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today’s conference call. Information concerning the risks and uncertainties that could affect our financial results is contained in our SEC filings including the final prospectus filed on April 17, 2014 relating to our company’s initial public offering and on Form 10-Q for the quarter ended September 30, 2014, which we plan to file tomorrow, as well as in today’s earning release. Participating with me on today’s call are Tom Klein, our President and Chief Executive Officer; Rick Simonson, our Chief Financial Officer; and Chris Nester, our Treasurer and SVP of Finance. Tom will start us off with a review of our third quarter performance. Rick will then offer some additional perspective on the financial results and forward outlook before turning the call back to Tom for closing remarks. We will then open the call to your questions. With that, I’ll turn the call over to Tom.

[Tom Klein:]

Good morning and thanks again for joining us today. On this Veterans Day all of us at Sabre give a big thanks to all military veterans, active service members, and their families. Our third quarter results demonstrates strong execution across the business as well as continued progress against our strategic initiatives that drive focus and continued product and innovation leadership. Before Rick and I step through the third quarter results I want to reinforce a few key points that frame our strategy today and going forward specifically our promise to investors and to customers. Our core investor promise revolves around Sabre delivering stability based on predictable volume driven business model, long term customer engagements, and very high customer retention. Strong top line and bottom line growth resulting from leading solutions and deep customer relationships and increasingly strong cash flow as a natural output of our business model, growth, and stewardship of capital. Sabre’s core customer promise has been able to divest travel ecosystem with scalable technology to accelerate the revenue and profitability. Always striving to use technology advances to bring new value to our customers. Our most recent focus has been on data and business intelligence, mobility, and personalization. These are themes you’ve heard from us and will continue to hear from us. Constantly evolving our solutions to meet the changing needs of our customers is the life blood of our business. Now moving to the third quarter, our operational results were strong and our continued execution puts us in a great position to deliver solid full year results. We also continued to drive new sales and technology implementations that we expect to translate into growth next year and beyond. And finally we continue to bring strong customer centric innovations to market that will create new revenue streams in the years to come. Like the recent release of our SynXis Enterprise Platform, the only modern and then platform designed to enable hoteliers to deliver the guest experience they aspire to while improving revenue and profitability. In summary we are on pace to deliver solid 2014 results and we are very confident about the longer term trajectory of this business that will deliver the mix and stability growth, and increasing cash flow that we’ve been discussing with you during the last several quarters. For the third quarter, total company adjusted revenue was $759 million, a 2% decline due to the business model change at Travelocity while adjusted EBITDA increased 14% to $230 million. We continue to realize strong revenue and adjusted EBITDA growth across our core businesses in the third quarter with 9% top line growth and 10% adjusted EBITDA growth excluding Travelocity. In our Airline and Hospitality Solutions business, strong execution in customer growth drove a 14% increase in revenue and our scalable technology platform helped turn that into mid-teens performance into 43% adjusted EBITDA growth. At Travel Network 4% revenue growth drove 5.5% growth in adjusted EBITDA. While I am pleased with the uptick we saw in Sabre Network and with the benefit of the operating leverage in this business, while expected we still view the Travel Network business in 2014 as lagging our forward expectations of 4% to 6% top line growth. Our business model shift to Travelocity began to produce improve financial results for the sharp return to positive EBITDA in the quarter. In summary I am pleased with our overall execution with the momentum that we are building as we work towards the close of this year from up to 2015. Looking more closely and Airline and Hospitality Solutions, 137 million passengers were boarded through our SabreSonic CSS reservation solution in the third quarter. This is an increase of 8% from the prior year driven by strong growth within our customer base. With year-to-date growth above our initial expectations and the fourth quarter outlook, we now believe full year passengers reported growth will be about 7%. Our broad portfolio of leading commercial and operations solutions also continued to perform well as we sell into both SabreSonic CSS customers and more broadly to airlines around the world. At Hospitality Solutions we focused -- our focus on new sales and add on products at current customers is paying off. Our sales pipeline and year-to-date win rate have both increased materially over last year. These initiatives coupled with same customer growth resulted in high-teens revenue growth in the third quarter and bode well for continued growth in the fourth quarter and into next year. In total, the strength across Airline and Hospitality Solutions produced revenue growth of 14% for the quarter. Efficient flow through from our SAS based solutions drove a 43% increase in adjusted EBITDA for the quarter to $82 million resulting in an adjusted EBITDA margin for the quarter of 39%. In addition to strong financial results our momentum was also evident in the technology implementations and sales successes that are foundational to our efforts to drive faster future growth. Through the third quarter, our Airlines Solutions team has implemented 149 solutions across 98 customers this year. Among the implementations in the third quarter, we achieved an important milestone when American Airlines went live on a single instance of our scheduling software across the combined American Airlines and U.S. Airways network. Our best in class schedule manager product is used by more than 70 airlines globally to manage and optimize their schedules and network plans. And additionally we made significant progress on another large scale implementation with United Airlines where we are implementing our leading flight planning solution across their entire fleet. We also signed multiple new commercial agreements in the quarter, included is an important SabreSonic CSS renewal at Aeromexico, further solidifying our relationship with one of the largest carriers in Latin America. Our Airlines Solutions sales team has built a robust pipeline of opportunities spanning the breadth of our solution portfolio and we expect to close 2014 with record sales contract value. At Hospitality Solutions, last Thursday we officially launched the new SynXis Enterprise Platform. A fully integrated hospitality platform designed to enable hoteliers to build their business operation around the guest experience. During 2015 as we roll out the SynXis platform, hotels will be able to use mobility to manage and fulfill guest experiences, deliver highly personalized promotional offers in any sales channel, while maximizing revenue and differentiating themselves by creating one of a kind guest experiences. These are capabilities that our hoteliers have been asking for and are keys to their future success. Included in the platform launch was the market introduction of SynXis property manager, a new solution with increased functionality and tighter integration with our SynXis central reservation solution. In September we announced the acquisition of Genares, a provider of central reservation systems to more than 2500 hotels extending our position as the category leader serving over 20,000 hotels. This opens new cross sell opportunities which is a proven driver of additional customer benefit and revenue growth. In summary the third quarter was a strong quarter across all aspects of our solutions business including a host of successful implementations and strong sales momentum that delivered outstanding financial and operating results. This positions us well for full year 2014 performance and sets us up for continued growth into 2015 and beyond. At Sabre Travel Network as we mentioned last quarter, booking activity improved over the summer months. Direct bookings were up 3% in the quarter, up from 2% growth in the first half of the year. The pickup in growth in EMEA and North America was dampened by continued weakness in Venezuela. Booking volume coupled with growth of non-booking revenue resulted in a 4% growth in the quarter. And as we saw continued operating leverage with 5.5% growth in segment adjusted EBITDA. Travel Network enjoys a leading competitive position with our desktop platform of fare and itinerary search and mobile technology that are second to none. We are constantly seeking to broad and expand our content and capabilities in areas like personalization, mobility, and business intelligence for travel suppliers and buyers. We have a history of outpacing our competition in new travel agency customer wins. Since the start of last year we far outpaced our competitions through the addition of new agencies having added 65 new customers globally over that period and more new agencies than both of our competitors combined. And we continued to strengthen the networks value in third quarter. We added over 50,000 European hotels with our new relationship with HRS Hotels. In addition to multiple renewals, 7 new airlines joined Sabre Travel Network and we are working with nearly 100 airlines worldwide to enable them to market and sell their ancillaries and branded fares in our travel marketplace, providing carriers a high yielding sales channel through personalized travel. Finally two new rail companies signed on to distribute through our network during the quarter. Our leading technology in content continued to drive our success in the corporate travel market where we have relationships with 82 of the top 100 travel purchasing corporations identified by business travel news. In the third quarter we had 8 renewals and 2 new sales to Fortune 500 multinational corporations. We also signed up 3 multinational companies to use our new mobile offering TripCase Corporate. And we continue to leverage the unique strengths of our network by delivering on our promise of invention and innovation. The Sabre Red Workspace and Sabre Red Mobile Workspace together provide travel agents with the most powerful gateway to efficiently buy and manage travel. We bring innovation from developers and customers into the workspace with the Sabre Red App Centre providing agents with the flexibility to customize our solution to meet their unique travel buying needs, to enhance revenues and customer service. Our technology at the agency desktop is second to none. In our unique mobile solution TripCase continues to be an industry leader with an important differentiator versus competitors. Growth has been outstanding. We are on pace to manage almost 30 million trips this year up from 11 million in 2013. We believe this is significantly more trips than anyone in the category, with minimal marketing investment to build that position. As a constant companion for travelers on business or leisure trips, TripCase helps us gain important insights into traveler behavior and have unique opportunities to facilitate interaction between agents, suppliers, and travelers. And we continue to expand the TripCase mobile platform. We recently announced integration of Uber within the TripCase app and signed on as a launch partner for the Samsung Gear S watch. Underpinned by our technology content for customer success we believe we are positioned for more robust Travel Network growth next year as we anniversary some of the temporary headwinds that have impacted growth rates this year. Turning to Travelocity. The North American business results are now demonstrating the value of the strategic marketing agreement with Expedia. This includes a $25 million quarter-over-quarter sequential increase in adjusted EBITDA from a loss in the second quarter to $16 million of positive adjusted EBITDA in the third quarter. Adjusted EBITDA in the North American business is coming in with higher margins but lower revenues than anticipated. As we refine how we optimize the EBITDA with the Travelocity brand on the Expedia platform, we have chosen a preference to drive rapid growth in highly profitable hotel and package bookings. This decision results in lower revenue and marketing spend. We are also seeing a decline in air bookings as we shift marketing focus away from air. Reflecting Travelocity's changed business model, total Travelocity adjusted revenue in the third quarter which includes Travelocity.com and lastminute.com was $89 million, a decrease of 45% year-over-year, again preliminarily driven by the change in business model at Travelocity.com. During the quarter we announced we are seeking strategic alternatives for lastminute.com. We’ve made good progress on these efforts and we think it’s appropriate to exclude the business from our forward outlook. Although we cannot promise that the sale will be successful, a revised guidance which Rick will discuss in a moment reflects this change. And with that I’ll turn the call over to Rick to walk you through the financials and full year guidance.

[Rick Simonson:]

Thanks Tom. Solid Q3 adjusted EBITDA performance was a result of good revenue growth across our Airline and Hospitality Solutions and Travel Network businesses and particularly strong earnings flow through in the Airline Hospitality Solutions as well as a return to positive adjusted EBITDA at Travelocity. Given the changes in the Travelocity business model, I think it is most helpful to focus on the results of our two core businesses Travel Network and Solutions which we refer to as Sabre excluding Travelocity. On this basis revenue was $670 million, an increase of 9% year-on-year. Q3 adjusted gross profit totaled $292 million, a 10% improvement from the same period in 2013. And total adjusted EBITDA increased 10% to $214 million. Sabre consolidated adjusted earnings per share totaled $0.26 for the quarter. Moving to the balance sheet and resulting cash flow for the quarter. From Sabre consolidated adjusted EBITDA of $230 million, we generated $73 million of adjusted free cash flow, a 37% increase compared to year ago period. Total adjusted CAPEX in Q3 was $60 million. Although we expect capital spending to increase in Q4, total spending will likely be below our previous forecast. We now anticipate full year adjusted capital spending of approximately $270 million. Total net debt was $2.9 billion as of September 30, reflecting significant debt reduction this year driven by the IPO proceeds resulting in a net debt to trailing 12 months adjusted EBITDA ratio of 3.6 times. So, what are our uses cash beyond the continued payment of our dealer dividend. As we have discussed, we continue to prudently invest in the business through internal investment as well as strategic acquisitions like the Genares acquisition we made in the third quarter. We also plan to delever the balance sheet and continue to target achieving a debt-to-EBITDA range of between 3 and 3.5 times. Turning to the forward outlook, starting with Sabre excluding Travelocity. We are reiterating our revenue guidance range of $2.575 billion to $2.595 billion. Additionally we are reiterating our Sabre excluding Travelocity EBITDA guidance of $833 million to $843 million. We are also reiterating guidance for Sabre consolidated adjusted EBITDA of $848 million to $863 million. We continued to expect net income of between $222 million and $237 million and EPS in a range of $0.90 to $0.96. Within this, based on current trends, we now expect stronger full year growth in the solutions business as previously discussed and growth towards the lower end of our previous guidance at Travel Network. In Airline and Hospitality Solutions we are increasing our 2014 revenue growth guidance to between 9% and 10%, driven by solid growth across our customer base and incremental sales across our broad portfolio and consulting. We are increasing our estimate for full year passengers boarded in Airline Solutions to increase approximately 7% for the year, a significant step-up from our initial expectations of 4% to 5% growth. As we have exited the third quarter, bookings growth at Travel Network has been somewhat soft. As a result for 2014 we now expect full year bookings growth to be at or slightly below the lower end of our 2.5% to 3% range. As a reminder bookings and revenue growth have been somewhat dampened this year by the continued decline in air travel in Venezuela. Accordingly full year Travel Network revenue growth is now expected to be at the low-end or slightly below our previously discussed 1.5% to 2% range. Revenue growth has also declined due to lower average pricing related to the merger of American Airways and U.S. Air. Important to note we will anniversary both of these impacts in Q1 of 2015. Now looking more closely at the fourth quarter, we expect modest bookings growth. Q4 revenue growth will also be impacted by data processing revenue minimums associated with our Abacus joint venture. Because of stronger year-to-date performance, the annual Q4 data processing true up payment to Sabre is expected to be less this year than in 2013, that creates a challenging comp. With this in mind, overall Travel Network revenue growth in Q4 is expected to be down modestly. Next Travelocity guidance, as Tom mentioned we are seeking strategic alternatives for the lastminute.com business. Accordingly we are updating our guidance to remove the year-to-date, an estimated fourth quarter impact of lastminute.com results from our guidance. As a result we have reduced full year Travelocity revenue guidance. This change does not impact full year EBITDA guidance. We are also adjusting our full year expectations for the Travelocity North American business due to lower expected revenues at higher margins resulting in the same Travelocity EBITDA expectations as our previous guidance of between $15 million and $ 20 million for the year. So for Sabre in total, we expect to meet our previously issued full year guidance with a bit more strength in the solutions business and a bit less in Travel Network with consolidated EBITDA, net income, and EPS all within the ranges we previously communicated and with the core businesses well positioned for growth as we look across the end of the year and into 2015. I’ll now turn back to Tom.

[Tom Klein:]

Thank you, Rick. In total the third quarter continued to demonstrate progress against our operational and strategic objectives. Our industry leadership is evident in the products and the world class customers that rely on our technology to power their business and the financial results we produced. We have strong momentum as we finish out the year and we expect to see continued momentum in 2015 as we build on and expand our industry leadership and deliver on our growth stability and cash flow commitments to you. Most importantly, we are more focused than ever on delivering game changing technology solutions for our customers especially in the vital areas of data mobile personalization which further reinforces our unique role as the leading enabler of the travel ecosystem. And with that I’d like to ask the operator to open the call for questions. Operator?

[Operator:]

(Operator Instructions). Our first question comes from Jim Snyder with Goldman Sachs.

[James Snyder:]

Thanks for taking my question. I was wondering Tom if you can maybe start off on the strategy at this point for the Travelocity segment given your intention to potentially invest in lastminute.com and then given the refocus away from error in the rest of the business, can we kind of talk about the investment levels you are willing to kind of put in there, whether you still expect those to kind of pick up as we go forward, and kind of what revenue run rate in terms of Travelocity should be given all that?

[Tom Klein:]

Okay, well I think Jim first there is no change in strategy and we’ve said from really since about this time last year that our focus was going to be on growing the core businesses and that we wanted to put Travelocity in a position where we did get kind of a consistent and stable view of what the business would like going forward. Feel like we’ve done that. The Expedia deal is working as we expected. I think our learning and I mentioned this last quarter, as we’ve learned how to market into the Expedia platform with the Travelocity brand, I think the team just gets smarter every day. We have decided that we can drive the level of EBITDA and optimize EBITDA by focusing on hotel and packaging. I don’t think that will be a surprise to anybody. I think that’s pretty consistent across the industry. And while we continue to sell an awful lot of air, we are just not marketing as aggressively into the air segment. So I think we’ll continue to view what we’ve said all along as far as our guidance for the business, we will manage it for EBITDA and we’ll –- you saw the growth, the 25 million sequential growth here quarter-over-quarter and we expect that as we step off into the first quarter next year we’ll continue to see good strength as we optimize EBITDA in the business.

[Rick Simonson:]

Hey Jim this is Rick and your question in terms of Travelocity top line, as we have given in our guidance in the press release today, we expect a full year of 180 million to 190 million that excludes lastminute.com for the reasons that Tom and I both mentioned given our look to sell that and we’ve had very good interest in that brand. As we expected, its one of the top brands just like Travelocity is one of the number one brands in travel. We got detail in that section of the guidance in further in 10-Q against the quarterly adjustments on revenue excluding lastminute.com so you can step through the math pretty precisely there.

[James Snyder:]

That’s helpful, thanks and maybe just a follow up on solutions, it is good to see the strengths in that business, can you maybe talk a little bit about A) which of the modules within solutions are getting most traction in the near-term in the market and then B) do you think the strengths in hospitality in particular is sustainable at this kind of growth rate over the next couple of quarters?

[Tom Klein:]

Let me start with hospitality. We made this announcement last Thursday, it is an important announcement to bring the SynXis Enterprise Platform to market. It is something, the notion of having an integrated system across the property management as well as the central reservation systems in the industry there has been variances for a long time. And we expect to get good growth out of that platform launch. So, I absolutely feel good about the continued strength in the hospitality sector both geographic expansion as well as bringing new products to market. And also selling team has done a great job of selling into current customers as I mentioned, just selling out onto current customers. So we absolutely expect the strength to continue into next year. As far as Airline Solutions, it has actually been pretty balanced. I mentioned the planning solution in American, that's a solution that I believe the numbers 23 of the top 25 carriers in the world use, our planning software. So we continue to get good traction in that whole commercial suite which we call our vision. But as we look longer term, we are making big investments in two of our operations solutions areas, one is in crew and the other is in the overall recovery solution. So putting the airlines back together after disruption and that means getting the crew back to where they need to be, getting the aircraft rescheduled to how they need to be, and getting the passengers reaccommodated. We think both of those areas are right for a company like ours to get the solution right and to really see good growth and we are investing heavily in both those areas and we will have significant releases as we get into 2015 that starts to bring those capabilities to market, and we have a good, strong pipeline around them. So that's where I would expect that operations area to continue to grow and our SabreSonic CSS pipeline is active and as we said last quarter we expect that we will be announcing new deals as we go forward.

[Rick Simonson:]

Yes, so in the mid-term we feel real good about the growth rates and solutions. We said we have targeted 12% to 14%. In the quarter here we had little over 14% and again we expect hospitality to grow a bit faster even than the target given its stage.

[James Snyder:]

That's helpful. Thank you.

[Operator:]

Our next question comes from David Togut with Evercore.

[Unidentified Analyst:]

For David Togut. Could you discuss your outlook for airline capacity growth in Western Europe?

[Rick Simonson:]

You know I think we will leave that to the airlines. I think we have seen the airlines manage capacity very beneficially for their financials. As we have said, overtime the outlooks there show that increasing somewhat but I think the airlines and people like Boeing and other have better estimates than us on that.

[Unidentified Analyst:]

Okay, after anniversaring the American Airline, U.S. Air pricing what rate do you expect GDS pricing to increase?

[Tom Klein:]

We have said, I guess we have said all along that the GDS growth rates we expect those in the mid-term of 4% to 6%. We believe that we can -- we should and will be in that kind of range. And we have talked about a combination of price, market share growth, and just general secular growth with price being in the low single-digits and that's the guidance that we have talked about before and that is probably as detailed as we are going to get.

[Unidentified Analyst:]

Thank you.

[Tom Klein:]

Thanks.

[Rick Simonson:]

Thank you.

[Operator:]

Our next question comes from Kash Rangan with Merrill Lynch.

[Kash Rangan:]

Yeah, thank you for taking my question. Nice bottom line results. I am curious you mentioned there are some headwinds to the network business as you exited third quarter, can you give us some commentary on how -- what the outlook for that business is going into next year, how do you see some of the headwinds changing? And also at high level look if you take on the SAP acquisition of Concur, your stock are they going to be stepping up at travel supply chain vision and how that might affect the economics of traditional companies such as yours, just wanted to hear your side of the argument for that new flair in the travel landscape, thank you?

[Rick Simonson:]

Hey Kash on the first question, this is Rick. In terms of TMV, the bookings and the revenue, again the two significant headwinds do get anniversaried in the first quarter and that’s the pricing impact from the large merger of American and U.S., excuse me, and then the Venezuela impact. And so again as you see, those have amounts for a couple points right there and so we look well positioned. And particularly given some of the agency wins that Tom mentioned, you do a lot of work ahead of time on converting agencies so that they result in future opportunity for bookings growth. So again while we are not satisfied with where we are in terms of booking and revenue growth in Travel Network this year, we feel very strong about meeting our longer term targets of 4% to 6% driven by those three factors that Tom mentioned.

[Tom Klein:]

And while -- as Rick mentioned we are not going to, we won’t put out our specific capacity forecast but most of what we see for capacity forecast going into 2015, is a tick up from where we have been over the trailing couple of years. So we expect the macro environment to be as good as or as good or better than it’s been. As it relates to SAP and Concur, I have mentioned before Kash, Concur is primarily an expense company. I think that’s where most of the revenue came from. I think they have really a relatively small plane travel. We generally like to see focused competitors get picked up by big horizontal players. So I think that competitive dynamic will maybe change but we’ve competed well with Concur in this small piece of travel business that they compete in. And we expect to keep doing that as repeat (ph).

[Kash Rangan:]

Got it and Tom just one final high level question again, impact of lower gas prices to your business, I know you have 2 or 3 terms both from the end market but curious to get your take how you view your business in the context of lower gas prices.

[Tom Klein:]

Well I certainly like a healthy airline sector opposed to one that’s financially challenged and I think fuel, oil prices where they are today should stack up to really help the airline profitability as we go into 2015 and already showed up in the third quarter. So I mean that’s a good dynamic for us, it’s good to have healthy customers that are willing to spend money on upgrading technology and they certainly have that need. I hope that extra profitability result in a little more technology spend.

[Kash Rangan:]

Thank you very much.

[Tom Klein:]

Thanks Kash.

[Operator:]

The next question comes from Brian King with Deutsche Bank.

[Brian King:]

Hi, guys. Non air bookings improved from 2Q but I think it was still up only about 1%, just want to get maybe the outlook for non air bookings going forward?

[Rick Simonson:]

We think the non air bookings, again what we gave is our detail on the total bookings. We don’t break out and give you know guidance between air and non air, Brian. And as we mentioned we are focused on our Travelocity side of focusing very much on driving non air bookings in terms of hotels and packages, so to the extent that we can drive that benefits obviously through the Travel Network. And again you’re seeing that strong non air bookings for some of the OTAs, we have strong position in that. So that’s how we really play that aspect of it.

[Tom Klein:]

Yes I think Brian the other piece is, we are focused on building up some of the content. I mentioned the 50,000 hotel increase with European hotels with the addition of HRS. I think those types of moves will help us with non air but our hotel to air ratio is the best synergy yes industry and we kind of see that part of the business grow at about the same rate as our air revenue as well as it has at least that's what it has done historically.

[Rick Simonson:]

And a year-on-year comp in that and our non air is driven by the SMA with Expedia.

[Brian King:]

Okay and then just looking on air bookings, it looked like the share ticked down slightly, I think it was about 30 basis points. It feels like maybe we are taking share in Europe though so, if you can maybe just breakdown kind of the move and the mix and the pipeline per share?

[Tom Klein:]

Yes, I think what’s going on Brian, I mentioned we picked up about 63 new travel agency customers in the trailing 24 months or so. We think that’s more than our two competitors combined. Now those are locations and that business builds overtime and you have usual -- there is a handful of big customers around the world and then there is lots of small and medium sized customers. And we have been growing agency locations at a rate much faster than either competitor over the last, as I said the last 24 months or so. That will start to show up overtime. We think that the share mix has really been what's driven share up and down and we have not lost any meaningful customers. We have been a net gainer of customers but the softness of the U.S. market versus the rest of the world has driven a slight decline in our share. There is really not much else going on there as we dig into the share numbers. But I guess the -- actually there is one other thing is going on and that is we are -- we had a north of 60% share in Venezuela where bookings are down significantly. So that's a bit of a drag across all of the results, the booking results, the financial results, and the share number.

[Brian King:]

Okay, and then last question from me, just use of proceeds with the lastminute.com sale?

[Rick Simonson:]

Again, Brian as we said we continue to pay the dividend. We look to delever and hit in our target range but we are going to selective acquisitions. So our change or our focus in terms of use of any excess cash remains the same and so any proceeds from that or any other disposition would go in that order.

[Brian King:]

Okay, alright, thanks guys.

[Rick Simonson:]

Thanks Brian.

[Tom Klein:]

Thanks Brian.

[Operator:]

Our next question comes from Jason Kupferberg with Jefferies.

[Ryan Cary:]

Hi, this is Ryan Cary calling in for Jason. Just wanted to dig a little deeper into the Travelocity results, I know during last quarter's call you expected to bounce back with increased marketing expenses, was just curious if marketing increase didn’t drive the expected growth or was there something else going on?

[Rick Simonson:]

Well the marketing was really kind of an increase against our plan and what we have seen is this is a business where you adjust real time. It isn’t something you plan three to six months ahead and then stick with that. It is very dynamic to our business and we have got it attuned I think well to drive higher margins, higher EBITDA at somewhat lower marketing spend, and we have also made the shift in terms of where we are putting it on the non-air side, disproportionately more than what we had planned versus the air bookings as well as we mentioned. So we feel real good about again having that top line revenue that we have given update on, the increased margins, and a strong swing to positive EBITDA in the quarter and being able to hit our target which again we are managing for EBITDA there. So, no big change there, we just refine it as we learn more day to day and week to week.

[Tom Klein:]

And Ryan, this is Tom. Look I think we have said that we are going to manage the online businesses for EBITDA growth. I think we are being -- we are being reasonably conservative about that approach and we as I said in my remarks, we saw a path here to spend a little less on marketing and get really good yields out of the hotel and packaged channel which is converting terrifically on the Expedia platform. We are seeing really good upside there and we don’t want to get too far of our SKU with respect to the marketing spend because that’s just not how we view that businesses roll in the portfolio right now.

[Ryan Cary:]

Got it and then just quickly on FX, with all the movements and currency relayed, do you think about FX impacts going forward, have you ever broken out what percentage of revenues collected non-USD and then maybe what percent of costs are in non-USD denominated currencies?

[Rick Simonson:]

We go through in our 10-Q and our statements in detail what our exposure is to the primary five to six other currencies. We can take you through that offline, be happy to do that.

[Ryan Cary:]

Perfect, thanks so much guys.

[Tom Klein:]

Thanks Ryan.

[Operator:]

Our next question comes Brian Essex with Morgan Stanley.

[Brian L. Essex:]

Good morning and thank you for taking the question. I was wondering if we could touch a little bit on geographic expansion and you know, it is nice to see the air bookings up, given some of the comments from the airlines about capacity constraint, but how much of that growth was U.S. versus outside the U.S. and I apologize if it has been addressed on the call already, but just trying to get an understanding of progress expanding outside the U.S.?

[Tom Klein:]

I think, let me break it down to Airline Solutions and I think we had a little less -- maybe a little less clarity on Travel Network side. But on the airline solution side some of that, I think the growth in private passengers boarded that we mentioned much of that is coming from ex-U.S. carriers so we’ve gotten a little bit of a good guy on the mix of U.S. carriers that we currently handle, growing a little bit better than the U.S. market. But I think the upside and the revision in our guidance has been primarily on the strength of past U.S. carriers. So I think we are certainly seeing a business where we have a more or less 50

[Rick Simonson:]

Yes, on Travel Network again we had booking growth were up 3.1% and again primarily that was driven by strong growth in Europe. As we mentioned very little growth in Latin America because of Venezuela touched down by -- actually below that number and North America just a little bit below that overall global number.

[Tom Klein:]

And Europe we are growing at about twice due to -- market in Europe. So we are actually in bookings growth out of Europe stronger than the rest of the world based on some share gain.

[Brian L. Essex:]

Okay, could you help us understand or maybe reconcile how that might manifest itself in the pricing and in terms of what kind of pricing uplifts you might see from Europe and what kind of impact Venezuela might have had that kind of throws a wrench into the works in terms of getting an apples to apples comparison going?

[Rick Simonson:]

Well I guess overall I mean, we ended up the quarter at a segment level EBITDA right on 42 and a little 20%, a little change and that’s right where we said we expected margins would be consistently be with a little bit of variation quarter to quarter. I think what that shows you where we are able to offset the decline from Venezuela which is a very profitable market with higher growth, that average in Europe. So that kind of worked to balance itself gives a little idea of the turn. So we do a little bit better in Europe of course but we lost some pretty profitable bookings in Venezuela, we ended up spot on.

[Tom Klein:]

Yes, but I think Brian the longer-term pricing trends that I just mentioned a bit ago, we think low single digits and the mix of that will change over time. But we think that’s the right number if we look at our whole base and average across again what is a big U.S. business. We think that low single digit is what we should expect and that’s again one of the builds that gets us to 4% to 6% mid range guidance.

[Brian L. Essex:]

On the revenue?

[Tom Klein:]

On the revenue side.

[Brian L. Essex:]

Okay, very helpful. Thank you.

[Operator:]

Our next question comes from Mark Moerdler with Sanford Bernstein.

[Unidentified Analyst:]

Dee Shane (ph) coming in for Mark today. Just two questions, I was wondering if you can give us a sense of how we should think about the pipeline for the SAS side of the business going into the end of the year, maybe into next year? And then the second question is traditionally we have kind of valued air at 1.5 times GDP, is that number still relevant, how should we think about that going forward? Thank you very much.

[Tom Klein:]

Thanks. Yes, so the first question about the sales pipeline and I’ll talk about solutions broadly not just airline. As I mentioned, we’ll finish 2014, we expect an Airline Solutions and Hospitality Solutions with the best sales years that we’ve ever had from a total contract perspective. I won’t get out with specifics of what those numbers look like but it just bodes well for future implementations and certainly get us comfortable with the mid-term guidance that I just talked about. But again very good sales years, very good pipelines across all the product families, not really specifically weighted to anything in an unbalanced way. CSS pipeline is strong and mostly non-U.S. weighted. So we expect good results there. As far as the 1.5% GDP, I think we need help from capacity to see that consistent overtime, so what’s happened over the last let’s call the trailing 24 to 36 months is with capacity consistently rationing down even as the macro economy picked up, there just wasn’t enough -- there haven’t been enough seats in the market to drive that traditional 1.5 times GDP. I think if you use airline revenue you can probably get there because of the increases in fares but I don’t think you can get there from a passenger boarded perspective. So as capacity ticks back, we think demand is out there but the airlines have been disciplined in capacity and you have I think that’s probably the number that is most relevant going forward.

[Rick Simonson:]

Yes, so payments are running less than that 1.5 times GDP but the great thing is again in our solutions business and coming to your question about how is the outlook there, our passengers boarded because of our position with growing airlines. We have been able to raise that up to being more than 7% this year. So, we are doing quite well, that bodes well and then we have got the big implementations of American and Air Berlin in our pipeline and start to see benefit of that in 2016. So again that gives a good predictability and really underpins Tom's point of stability, how do you bring stability and the predictability of the business that also has great growth characteristics. And we think our solutions business are all of those strengths.

[Tom Klein:]

And I making them to be clear that 7% this year is as we say, it is really kind of same store growth with the airlines. Right, so we haven’t had implementations of substance this year. We have talked about the implementation pipeline which is very, very strong. We are doing a lot of work on it and we will see good lifts from that as we get into the end of next year and into 2016. But this is the same store growth which has been again, on the carrier base we had very strong.

[Unidentified Analyst:]

Thank you very much.

[Operator:]

Our next question comes from Bhavan Suri with William Blair.

[Bhavan Suri:]

Hey, guys thanks for taking my question. First just on the SAS businesses, the airline hospitality businesses, you have done a nice job driving EBITDA margin now 39% up nicely from last quarter from last year; A) what's driving that and B) I guess where do you think that can go and can it be ahead of sort of the core Travel Network business?

[Tom Klein:]

Yeah, so we have talked about it going from what was trailing low 30s to driving it up into the mid to higher 30s and that will have a little bit of choppiness in where we land there but we expect it to again land up in those high 30s. That's where we think it will be for the foreseeable future Bhavan. I am not ready to say that it is going to tick up above those high 30s that we saw this quarter. From the standpoint of what's driving it, I think couple of things, one just leverage of the SAS platforms as we get the platform right and are able to add customers we should see good flow through. We are seeing that in a number of the solutions. I think the hospitality business is getting to a scale that we are starting to even while we are investing there we are still seeing good flow-through as we add customers. And I mentioned been very focused on adding on solutions to current customers and that it is generally a profitable, that's generally profitable growth when we are adding current customers. So, I think those types of trends are really helpful to the margin performance and give us confidence that we will hit that high 30s consistently overtime.

[Rick Simonson:]

Hey Bhavan remember also Q3s are highest seasonal quarter and strongest, so you had a little bit of seasonality effect in Q3 and the second half in terms of margins as well.

[Bhavan Suri:]

Sure, and then when you look at that business, when we started discussing things probably a while back it was sort of focused on some of the mid-sized tier 3, tier 2 type properties but it feels like there is a potential to expand up market, how are you guys thinking about that sort of space?

[Tom Klein:]

Yeah, we feel good about it on a couple of levels; one, the need is definitely there. We been talking to, let's talk about maybe the top 30 brands or so. We have two of the top 30 today. So we are not only in kind of mid tier properties. So we have customers that have more than 500 properties. As you know the largest part of the market customers have thousands of properties. As we have talked to that part of the market, they will go through in our view a technology refresh cycle here over the next five to seven years. And we think will be a player in that. So, we like our opportunity there. Again, I will point back to the announcement last Thursday, that's what that announcement was all about. It was positioning ourselves to serve every segment of the hospitality industry. We will continue to expand in that mid-tier which has been our sweet spot and we love the independent long-tail business in hospitality and we will good growth geographically. But we think we will be a player in the top 20 brands as they look at alternatives from what is primarily in house technology today.

[Rick Simonson:]

And like the financially healthy airlines that invest for growth and increasingly invest to upgrade their IT infrastructure. The same applies to hoteliers, they are in robust financial health and they are looking to get rid of some inefficient legacy. Thinks it positions us real well and the announcement of what we are doing with the SynXis Enterprise Platform is spot on to your question here.

[Bhavan Suri:]

And then one quick one, have you seen less of micros competitor in that space. Clearly they are more on promise than SAS and sort of hosted modeler but have you seen them less given the Oracle acquisition?

[Tom Klein:]

I wouldn’t say we’ve seen them less. I mean again, we -- no, I wouldn’t suggest we have seen them less.

[Bhavan Suri:]

Okay and then one last quick one on the Travel Network sort of just an update on sort of the approach to capturing more of the LCC, the low cost carrier share and sort of how you guys think about that given sort of those guys simply going suddenly quite fast?

[Tom Klein:]

Today we have between 70 and 75 as the high categories what if low cost carrier is. I think 75 of our Travel Network participants would call themselves low cost carriers. We think that’s a robust position and we continue to work with some of the bigger low cost carriers to bring them into the system. We don’t feel like we have gaping holes from a travel agency perspective as far as what they need, that usually guides are focus. I mentioned we have seven new airlines come into the system last quarter. That’s generally driven by geographic expansion and sometimes those are some regional players that are really important to travel agents in a particular geography. So we try to follow those needs but we are talking to every airline in the world about participating in the system and we expect that will have both low cost and regional carriers continue to join their Travel Network overtime.

[Bhavan Suri:]

Great, that’s helpful guys. Thanks for taking my questions?

[Tom Klein:]

Thank you.

[Rick Simonson:]

Thanks Bhavan.

[Operator:]

Our next question comes from Gregg Moskowitz with Cowen & Co.

[Gregg Moskowitz:]

Thank you very much. Tom you talked about how in Europe you grew about two extra markets, do you continue to think that you can gain a point or point and half of share in the year going forward?

[Tom Klein:]

Thanks Gregg. Yes, we feel pretty good about our position in Europe. I mean as I mentioned before, from a product perspective we think we have flat out think we have the best product in the world especially at the agency desktop and in finding lowest fare and best itinerary. And when I talked about TripCase, our competitors just don’t have an answer from a mobile perspective to that product. So we think we had significant differentiation on the product side that allows us to walk in anywhere in the world and have a good conversation with the travel agency about Sabre as an alternative. And there is a lot of places in Europe and really more broadly in EMEA where we have just been under represented. So we have entered about a dozen or so new markets mostly in Eastern Europe and Africa. We are very under rated in Africa where you have you know 6 of the 10 fastest growing economies in the world there, so again very rated there. So there is places where we think just by putting some focus, relatively modest investment in sales and service, people on the ground where we can grow to kind of an excellent share overtime and continue to feel off this one to one and half point of shares. So that’s been our approach. We feel really good about our progress and we’ve seen -- we’ve seen sales this year that should translate into that kind of number next year and we think we can keep doing it.

[Gregg Moskowitz:]

Okay, that’s helpful. Thanks Tom and then just a follow up for Rick on lastminute. So, lastminute was running a $7 million EBITDA loss year-to-date but even with the creaming up that asset as a discontinued Operator, you are still expecting Travelocity EBITDA to be 15-20 for the full year, is that just a function of the better than expected Travelocity related EBITDA in this quarter?

[Rick Simonson:]

Yes, that’s primarily the driver and you know we’ve also got a few clean up things that we’re finding some dimes and nickels here as we clean up and wind down the business on Travelocity. So it’s primarily the strong operating performance of T.com for the reasons we said in terms of maximizing EBITDA and then if you’ll exclude L&M it takes a little bit of drag away. Okay, next question.

[Operator:]

Our next question comes from Manish Hemrajani with Oppenheimer.

[Manish Hemrajani:]

Thanks for taking my call. When did you start to change your model for Travelocity, was that at the beginning of the quarter or end of the quarter and with EBITDA margins in the quarter at 18.5% for Travelocity, do you expect further acceleration in EBITDA?

[Rick Simonson:]

Yes, we announced the Expedia deal about late August of 2013 and we worked on the implementation really right out of that announcement into the first half of this year. So really the third quarter Manish was the first quarter that we had a reasonably clean operation at Travelocity without the noise of implementation and moving people around and the like. So we been at it for the better part of the year and this is really the first clean quarter that we have had.

[Tom Klein:]

And on the EBITDA margin there we think that’s pretty strong EBITDA margin in this quarter and we don’t really see material expansion.

[Manish Hemrajani:]

Got it and then can you talk about room night growths at Travelocity in the quarter?

[Rick Simonson:]

I am sorry missed your question.

[Tom Klein:]

No, we are not breaking that out Manish.

[Manish Hemrajani:]

Okay and then as we head into 2015, any early read into what should we be expecting for growth in airline hospitality and Travel Network and maybe some commentary around what your plans are for Travelocity in the longer term?

[Rick Simonson:]

Well, first on Travelocity, we put that on the Expedia platform. Its performing well and as we’ve said before we are happy to run it like that or we are happy to have the other party buy it and time will tell on that. In terms of our outlook for 2015, we haven’t given specific but again I think today we tried to give you proof points of why we feel confident over the medium-term of our guidance on the solutions business of 12% to 14% top line growth with expanding margins. Right, better efficacy in CAPEX therefore having kind of a triple driver of expanded free cash flow from that business. On Travel Network we have pointed out the headwinds this year that held us back from getting to where we expect to be which is 4% to 6% top line growth in Travel Network driven by bit of market share gain, a bit of price, and product innovation. There if we set stable margins in this 42.5% range and continue to have very good cash conversion so, that’s our medium term outlook and I think Tom put a bit of color in terms of our sales pipelines in solutions, in the agency conversions, in Travel Network that we think set us up well as our progression to those medium term targets as we enter 2015.

[Manish Hemrajani:]

Got it. One last one if I may with Orbits coming on the platform at the beginning of next year especially given their market share in the U.S. and your leadership in the U.S. market, what kind of benefit do you expect to see from Orbits in 2015?

[Tom Klein:]

Yeah, I mean we continue to talk to Orbits because we do business with them on a couple other pieces of business. So we sold them the Travelocity partner network which the bookings from that business flow through us today. They have another large customer that mandates Sabre that runs through us today. And then obviously we’ve talked to them about bookings from orbits.com. We’ve contracted to work with them into 2015. I think they are still working through what that might look like but we really thought about it as a modest ramp in 2015 because we don’t have anything better to go on at this point. But I suspect we’ll do more business with Orbits next year then we did this year. And we hope as we have a chance to compete, that we’ll gain bigger and bigger share of the business overtime. But right now we are having a pretty modest number in 2015 for Orbits right now.

[Manish Hemrajani:]

Got it, thanks a lot.

[Operator:]

Ladies and gentlemen we have time for one further question. Our next question comes from Abhey Lamba with Mizuho Securities.

[Abhey Lamba:]

And then Tom you mentioned about 2014 being the record contract signings for solutions business, how long will the implementation cycles be, is there a revenue event for 2016 or can it be early or later.

[Tom Klein:]

Well I mean we’ll see, that’s a great question, Abhey thank you. We’ll always see some of the solutions implement more quickly so part of our business that we sell, as we always do in this year will implement as early as 60 or 90 days after contracts, some of it will implement as we get into 2015. The big revenue drivers though really are the ones we’ve announced in the past are American Airlines on the reservation side for the combined AAU U.S. and then Air Berlin. Both of those are, we’ve said, we should start seeing revenue in the first half of 2016. So those are again obviously largest airline in the world with American and then one of the largest airlines in Europe with Air Berlin and those are again first half of 2016 is what we expect.

[Rick Simonson:]

And then of course we are working the pipeline to have other announcements and move things in the pipe both on the CSS SabreSonic reservations business as well as the more regular fast hitting products that Tom mentioned in the cases of for instance like the united product what we are rolling out there and the fleet planning across the overall American fleet.

[Abhey Lamba:]

Got it, and Tom you mentioned the impact of Oracle and Micros combo that you are not seeing any less of them but are you seeing any more them? And also as we go through this technology refresh cycle over the next five to seven years, does that combination create more opportunities for you or do you think the competitive environment could get more kind of intense with Oracle kind of pushing that product?

[Tom Klein:]

Yeah well, I mean on to the second question first. We think we have distinguished ourselves in the hospitality business. We think hoteliers noticed the level of service that we provide, we have got very good and innovative set of technologies to market. This announcement last week suggest that the SynXis Enterprise Platform is materially different from anything else in the marketplace. We think the hoteliers will take notice. So, we really like our position. We have distinguished ourselves there, we are one of the few really a handful of companies or less than a handful of companies that are growing into a trend in the hospitality business where we think we will see more outsourcing not less. So, being very bullish about the prospects for that business going forward. As far as the acquisition goes, we are a big customer of Oracle. I hope they saw a lot of databases. And I think we are really focused on hospitality and we will see if they are too.

[Abhey Lamba:]

Thank you.

[Operator:]

Ladies and gentlemen that concludes today's question-and-answer session. I would like to turn the conference over to Tom for closing remarks.

[Tom Klein:]

Well, thank you again for joining us in the call this morning. Appreciate your interest in Sabre and we look forward to speaking again soon. Thanks so much.

[Operator:]

Ladies and gentlemen that concludes today's presentation. You may now disconnect, and have a wonderful day.