Sabre Corporation
Q1 2015 Earnings Call Transcript

Published: 5 May 2015

[Operator:]

Good morning and welcome to the Sabre First Quarter 2015 Earnings Conference Call. Please note that today’s call is being recorded and is also being broadcast live over the internet on the Sabre Corporation’s corporate website. This broadcast is a property of Sabre. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent to the company is strictly prohibited. I would now turn the call over to the Vice President of Investor Relations, Mr. Barry Sievert. Go ahead, sir.

[Barry Sievert:]

Thank you, Nicolas, and good morning, everyone. Thanks for joining us for our first quarter earnings conference call. This morning we issued an earnings press release, which is available at 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 investors with additional questions to follow-up with Investor Relations. Throughout today’s call, we will be presenting certain non-GAAP financial measures, which have been adjusted to exclude expenses or other gains or losses related to restructuring, litigation and tax matters, and certain other items. The most directly comparable GAAP measures and reconciliations are available in our 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, disclosure of our guidance, including revenue, adjusted EBITDA, cash flow, CapEx and earnings guidance, our expected segment results, the implementation and effects of new agreements, 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 our Form 10-K for the year ended December 31, 2014. 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 first quarter performance. Rick will then offer some additional perspective on our financial results and forward outlook before turning the call back to Tom for closing remarks. We will then open the call for your questions. With that, I’ll turn the call over to Tom.

[Tom Klein:]

Thanks, Barry. Good morning and thank you for joining us today. It’s our fifth quarterly call as a public company. The first quarter marked a strong start to the year with solid financial results and continued commercial success across all of our businesses, putting us on pace to meet our full year objectives. Our total company revenue was $710 million, a 7% increase, while adjusted EBITDA increased 15% to $244 million. Adjusted earnings per share for the quarter were $0.27. In our Airline and Hospitality Solutions business, excellent execution and solid customer growth drove a 16% increase in revenue and scale benefits from our technology platforms delivered 34% adjusted EBITDA growth. In Travel Network, improving global bookings growth contributed to revenue increase a bit above 3% and 8% growth in adjusted EBITDA. We’ve also made significant progress on a number of fronts. We brought new innovations to market, including our Airline Solutions’ Customer Experience Manager that forward-thinking airlines like Virgin America will leverage to deliver personalized customer offers across multiple channels and dynamic ancillary pricing to drive revenue uplift. We converted sales pipeline opportunities into wins in our solutions business. That’s maybe the best demonstration of our momentum. In Hospitality Solutions, we signed a landmark agreement with Wyndham. And in Airline Solutions today, we announced our new agreement with LATAM Airlines to use the SabreSonic CSS platform along with many other solutions. Additionally, we executed on other priorities, including the completion of our divestiture of the online travel agency business and the refinancing of our 2019 bonds resulting in meaningful interest savings. We feel very good about our progress on multiple fronts. Our continued momentum makes us highly confident that we will meet our 2015 objectives. Now, let’s look more closely at the Airline and Hospitality Solutions business. 126 million passengers were boarded using our SabreSonic CSS reservation system. That was an increase of 7.2%. That’s stronger than our expected growth in our customer base and above the long-term industry trends. Our work on new SabreSonic CSS customer implementations in our pipeline remains on track. At American Airlines, the SabreSonic CSS implementation continues to pace for the fourth quarter. And we also continue to build our implementation pipeline for other solutions across our portfolio. In Airline Solutions, we had two big wins for our data and analytics platform Intelligence Exchange with two new customers, Southwest Airlines and Aeroflot, the largest carrier in Eastern Europe, joining British Airways and Cathay Pacific. This highly configurable data intelligence platform is the only solution of its kind in the industry. Intelligence Exchange leverages real time data and intelligently actions that data to drive operational efficiencies, customer service and loyalty, and revenue opportunities. This is one of several new product offerings we discussed at our recent Investor Day and we have a strong pipeline of airlines interested in Intelligence Exchange and other new capability. And as we do great work for our customers, we can sell into our broader portfolio. This quarter at Aerolíneas Argentinas, we successfully renewed an already broad agreement, but we had a chance to go even deeper and we added new solutions for them, including enhanced mobile and shopping capabilities. All of this reinforces that our industry-leading customer-centric retailing platform is resonating in the market with increasing interest from airline customers seeking a 360 degree view of their customers and they want to leverage our retailing platform to deliver personalized offers and a personalized experience throughout the entire travelers’ journey. We believe these capabilities are the foundation for the next phase of ancillary revenue, real retailing and customer service improvements and no one else is doing more in this emerging discipline. At our recent Investor Day, Virgin America’s CEO David Cush said, “Dynamic Retailer and some of the other Sabre systems that we’ve got coming online in the next few weeks are going to be one of the things that propels our revenue numbers going forward”. And today, we had big news in Latin America. We announced that LATAM Airlines, a global top 10 airline with nearly 70 million annual passengers will use the SabreSonic CSS reservation system. This decision came after a competitive evaluation seeking the best technology platform to propel LATAM into the next phase of their growth. Under this agreement, result based TAM Airlines with nearly 40 million annual passengers boarded will migrate to the SabreSonic CSS system. In Hospitality Solutions, we announced the landmark agreement with the Wyndham Hotel Group, the world’s largest and most diverse hotel operator. Wyndham used the SynXis Enterprise Platform as did global distribution in central reservation solution. In its announcement Wyndham cited the SynXis Platform as the best technology in revenue generation solution to help grow their 7,500 global hotel properties, including innovative pricing, inventory, currency, and language capabilities. This deal is the first of its kind in the world among the top 20 global hoteliers, and it builds on the property management agreement we announced in the fourth quarter with Wyndham’s 4,500 North American properties. We are demonstrating clear leadership and hospitality and we feel like we have a multi-year head start in the large hotel central reservation system space. Now let’s a look at how our innovation and commercial successes are translating to revenue and earnings growth. We had strong customer growth from across airline hospitality solutions producing revenue growth of 16% for the quarter. Excellent operating leverage from the scale of our technology platforms grow at 34% in adjusted to $71 million, resulting in an adjusted EBITDA margin of 34.9% for the quarter, up more than 4 points year-over-year. Strong first quarter financial results in market momentum, innovative solutions, robust sales and implementation pipelines together these make us very bullish about our competitive position on the trajectory and the airline of hospitality solutions business. Our implementation pipeline now includes American, Air Berlin, Alitalia, Air Serbia, Air Seychelles, Copa, and LATAM, representing more than 290 million passengers boarded annually on to our existing base of over 500 million annual passengers. Many have asked about the timing of our airline solutions reservation system implementation pipeline; and while the timing often moves based on the needs of our customers. If you are looking at the slides that are on the presentation, we built this illustration to show the clear strong visibility we have into our implementation pipeline and the resulting revenue growth that follows. As of today, we expect the current pipeline will be implemented largely between the end of this year and the first half of 2017. The most recent wins of LATAM and others support a clear path to our stated expectations for 12% to 14% average top line growth for Airline Hospitality Solutions over the medium term. At Sabre Travel Network, direct bookings growth increased 2.7% in the quarter. We saw a strong bookings growth of 10% in EMEA, compared to less than a point of growth in the market overall. Our share is up more than a full point. We saw a modest growth in the Americas, excluding Venezuela. Importantly, total bookings growth strengthened sequentially as the quarter progressed. Travel network revenue increased 3.3%, and adjusted EBITDA increased 8% in the quarter. Strong flow through to adjusted EBITDA was augmented by the elimination of the tax contingency accrual, which resulted in a $3 million benefit for the quarter. We had strong performance in all three businesses, giving us every expectation that will meet our full-year objectives, while positioning us for further acceleration in 2016 and 2017. Before turning the call over to Rick to walk through the financials and the forward look, there is one housekeeping matter than I wanted to address. Several members of the executive team, myself included, have entered into 10b5-1 Plans to begin selling a portion of our Sabre equity. As you know we are privately held for over seven years and during that time no equity was sold by management. As a result, several of us had options that will be expiring in the near term and normal needs for diversification after such a long period. We’ll continue to hold significant stakes in Sabre stock keeping our interests aligned with yours. And with that I’ll turn the call over to Rick, who will walk through the financials and full-year guidance.

[Rick Simonson:]

Thanks, Tom. Growth across each of our businesses and solid P&L leverage resulted in strong quarter one adjusted EBITDA and adjusted net income growth. A quick recap of the consolidated quarterly results. Revenue was $710 million, an increase of 7% year-on-year. Q1 adjusted gross profit totaled $321 million, a 12% improvement from the same period in 2014. Total adjusted EBITDA increased 15% to $244 million. Adjusted net income growth of 43% to $75 million, resulting in Sabre consolidated adjusted earnings per share of $0.27 for the quarter, a strong rhythm to those numbers. Moving to the balance sheet and cash flow, we generated $70 million of free cash from Sabre consolidated adjusted EBITDA of $244 million, an increase of 56%. On an adjusted basis, we generated $84 million of adjusted free cash flow, an increase of 38% over the prior year. Total adjusted CapEx for Q1 was $76 million, including capitalized implementation costs of $14 million. Upfront software fees collected from customers totaled $24 million. We continue to expect capitalized implementation costs and upfront fees collected to offset one another on a full-year basis. Total net debt was $2.63 billion as of March 31, reflecting significant net debt reduction driven by strong free cash flow growth and the proceeds from the Travelocity sale. Our net debt to trailing 12 months adjusted EBITDA ratio was 3 times, at the low end of our target range of 3 to 3.5 times. As Tom mentioned, early in the second quarter, we successfully redeemed $480 million of 8.5% 2019 maturity bonds. These bonds were redeemed through the issuance of $530 million 5.375% senior secured notes due in 2023. The amount issued covered the 2019’s principal, accrued interest and related fees, premiums and expenses. The lower rate results in a $12 million reduction in annual interest expense going forward. There was great demand for Sabre credit allowing us to achieve a significantly lower rate and extend the maturity. So with one quarter in the books, we are well within our full year guidance ranges. Looking across the balance of the year, our underlying business metrics are healthy and aligned with our expectations. Combined with our Q1 momentum, we are highly confident that we will meet our 2015 objectives. As a reminder, our previous guidance was as follows. For the full year, we continue to expect revenue between $2.77 billion and $2.80 billion. In Airline and Hospitality Solutions, we expect revenue growth of between 9% and 11% driven in part by passengers’ boarded growth of approximately 10%. At Travel Network for the full year, we continue to expect revenue growth of 4% or more driven by bookings growth of around 3%. We expect adjusted EBITDA of between $895 million and $910 million, and adjusted net income of between $275 million and $290 million. We expect adjusted EPS in a range of $1.00 to $1.06. Full-year adjusted free cash is forecasted to be more than $300 million and free cash flow expected to be over $250 million with the primary difference being essentially the last of the AA credits. Full year GAAP CapEx is expected to be approximately $250 million and capitalized implementation costs of $75 million. Now I would like to provide you with a bit more color on the shape and how we expect first half, second half and the remaining three quarters to develop. For Sabre overall, we expect first half 2015 revenue and adjusted EBITDA growth rates to be consistent with our full-year guidance of 5.3% to 6.4% for revenue and 6.5% to 8.3% for EBITDA. Quarterly, we expect stronger overall growth in Q1 and Q3 than in Q2 and Q4 respectively. For Airline and Hospitality Solutions, as we previously discussed, we expect passengers’ boarded growth to moderate over the next two quarters due to the loss of a small customer. Despite this, revenues from the broader portfolio are expected to drive continued strong growth in revenues and earnings in Q2 with tougher comps in the back half of the year. In Q4 specifically, we expect much stronger passenger boarded growth with anticipated cutover of American Airlines, but we expect revenue and adjusted EBITDA growth to moderate. This is primarily a function of the anniversary of a strong 2014 fourth quarter. Also, as a reminder, we currently provide services to American Airlines for their legacy reservation system that will end when the implementation of SabreSonic CSS is complete. Passengers boarded driven revenue under the new SabreSonic CSS agreement will be significantly more than the legacy services revenue we’ve been realizing but not entirely incremental given this previous revenue stream. To be clear, we expect a reacceleration of revenue and EBITDA in 2016 and 2017 consistent with our committed pipeline as detailed by Tom and consistent with our medium-term targets. Now turning to Travel Network, we saw our bookings improve in March as compared to the first two months of the quarter. We expect sequential improvement in bookings in Q2 versus Q1 based on continuing monthly improvement so far through April. However, Q2 provides the most challenging year-on-year quarterly comparison of the year for Travel Network in terms of revenue and EBITDA. While we expect bookings growth to improve sequentially, we don’t expect to see the full benefit of bookings growth to flow through to revenue and EBITDA. We expect more modest revenue growth in Q2 pretty much in line with Q1s and for year-on-year EBITDA to decline low single digits. This is primarily due to the tough comp with 2014 Q2 due to the $7 million contract termination payment from Travelocity to Travel Network in the year ago quarter and lower expected collections from Venezuela in this current quarter based on year-to-date trends. We expect stronger Travel Network revenue and adjusted EBITDA growth in the back half of the year. In summary, the solid first quarter came in largely as expected and our views on the balance of the year remain unchanged with expectations for strong full-year results from each of our businesses with a bit of variability from quarter-to-quarter as I just pointed out. Tom, back to you for closing remarks before we open up to questions.

[Tom Klein:]

Thank you, Rick. We continue to move the business forward across multiple fronts. First quarter results were strong and trends are very favorable. We continue to bring new innovation to market and drive progress against our sales and implementation pipelines, and we completed the divestiture of the online travel agencies increasing our focus and providing proceeds to further deleverage balance sheet. We became the first technology provider to successfully enter the enterprise hospitality space for both Central Reservations and property management with our landmark agreement with Wyndham. And we recently completed the refinance of some of our most expensive debt lowering our interest burden going forward and just today, we announced a new expanded agreement with LATAM Airlines Group further expanding our pipeline of SabreSonic CSS implementations. All our teams from across the business are driving value with a focus on innovation and on execution. We’ve positioned Sabre very well for the long-term growth, but we’ve also solidified our confidence regarding the reminder of 2015 and our ability to accelerate performance in 2016. And with that, we would like to thank you again for participating today. And I will ask Nicholas, the operator, to open the call for questions. Nicholas?

[Operator:]

[Operator Instructions] And our first question will comes from the line of Ashish Sabadra with Deutsche Bank. Your line is now open, please proceed with your question.

[Ashish Sabadra:]

Good morning. Solid results. A quick question on the TAM win. Was that win from a competitor or is it in-housed and moving to outsourced solutions? I was wondering if you could give some more color on the TAM win.

[Tom Klein:]

Sure. LATAM is – there are six airlines in LATAM family across Latin America. We had the airlines in the Spanish-speaking countries across Latin America on the SabreSonic CSS system, Amadeus had TAM in Brazil on the Amadeus Altéa system and TAM will be migrating to the SabreSonic CSS system.

[Ashish Sabadra:]

That’s great, yeah. And just one more quick follow-up on the Travel Network. We saw share improvement there and you talked about 10% bookings growth in Europe. I was just wondering if you could provide some more color about opportunity to further gain share in Europe.

[Tom Klein:]

Sure. This has been a consistent theme over the last year. We’ve said that, we felt like we could grow share in Europe somewhere in the neighborhood of 1 point to 1.5 points a year. We’ve been able to do that. We’ve entered about 13 new markets across EMEA, so some of those were in Africa, some of those were in the former CIS countries, but some were also in some bigger countries in Western Europe. And we’ve grown share in traditional markets like Germany as well. So we feel very good about our ability to take business anywhere in the world, but we were particularly focused on Europe and EMEA where we can grow very profitability.

[Rick Simonson:]

Ashish, this is Rick. And we had mentioned last quarter and a little before that, we talked a lot about the conversions of the travel agencies that we did in EMEA last year and how that would bear fruit, it’s a direct result of that.

[Ashish Sabadra:]

That’s great, that’s great. One final question on the second quarter. So you mentioned that we could see EBITDA growth decline in the second quarter especially in the Travel Network segment. I was wondering the margins in the first quarter were really solid, were there any onetime items there? And just want to better understand what the potential for margin profile in the Travel Network business is in the near- to mid-term?

[Rick Simonson:]

Right. In quarter, the slight decline in EBITDA is only TN to be clear, not Sabre. And onetime is the tax benefit that we got that Tom mentioned that was a release of accrual that benefited TN in the quarter. In terms of the margin profile in Travel Network consistent with our medium term expectations that we’ve shared previously. We would see revenue growth of 4% to 6% and we would see EBITDA margins consistent with where we’ve been running, which is about 42.5% plus or minus on a quarterly basis due to some of the variability we’ve talked about. So, absolutely no change there, rock solid.

[Ashish Sabadra:]

Great. Thanks for taking my question.

[Operator:]

Our next question comes from the line of David Togut with Evercore ISI. Your line is now open, please proceed with your question.

[Rayna Kumar:]

Good morning. This is Rayna Kumar for David Togut. How will you deploy the cash from the sale of Travelocity to Expedia?

[Rick Simonson:]

We used the cash we have it on the balance sheet and as you see, we refinanced the bond, so we get a little bit more benefit there. So we’ve dropped our net debt to EBITDA leverage ratio to 3 times. So we have that cash available for general corporate purposes and/or if our disclosed possible acquisition would come, we would use that cash and revolver draw to finance that as we’ve disclosed previously.

[Rayna Kumar:]

Got it. Can you provide us an updated outlook for 2015 and 2016 airline capacity growth?

[Tom Klein:]

Yeah, we typically are using other folks data, so I think – I would point you to airline analysts across the community as opposed to – for us, the guess we use. We look at everybody’s capacity forecast and we kind of use in average to build our models.

[Rayna Kumar:]

Got it. What is the timeline for Wyndham Hotel’s 7,500 properties to deploy SynXis?

[Tom Klein:]

It will be into 2016. We will see some – we will see activity this year, but the majority of the work will start to bear fruit in 2016.

[Rayna Kumar:]

Got it. Thank you.

[Tom Klein:]

Thank you. And just to make sure – just to be clear on the property management side, we are already deploying. That deal was announced in the fourth quarter. We have properties up and running on the system and we will continue that roll out on the Central Reservations deal that we just announced this quarter. That’s primarily impacting 2016 and in 2017.

[Rayna Kumar:]

Understood. Thanks.

[Tom Klein:]

Thank you.

[Operator:]

Our next question comes from the line of Jim Snyder with Goldman Sachs. Your line is now open, please proceed with your question.

[Jim Snyder:]

Good morning. Thanks for taking my question. If you look at your full year guidance, and maybe just step back and say what are the risks to the guidance for the year if any? And if nothing changes from where you are today in terms of the overall trends, is there anything that will really prevent you from hitting the high-end of that guidance?

[Tom Klein:]

Hey, Jim, it’s Tom. I will let Rick talk to a bit more detail. I think you heard as we talk through how we did this quarter that we feel really confident about the full year. We saw sequential growth each month on the TN business from a bookings perspective. We have good momentum across Hospitality and Airlines Solutions. So I think we feel really good about the year, but it’s also early in the year. We’ve seen a little bit of a continued draft in Venezuela from both a collection standpoint and from a traffic perspective. It’s not gotten any better. We think we buffered against that pretty well, but it’s a bit of a drag on full year. And with that, I will just – I will turn it over to Rick for a little bit more color.

[Rick Simonson:]

Well, if you don’t feel good about the sequential bookings growth that we’ve seen in the Travel Network business, we’ve laid out the very good visibility that we have in our solutions business. That’s one of the attributes of this business. I feel very good about that aspect and really it’s – Venezuela, and as I mentioned in Q2, we just started collecting cash out of Venezuela this year at the rate that we did last year. So that’s the one nick on it. But as Tom and I both reiterated in our prepared remarks, we are well within our guidance ranges for the year. We feel very good about it. We’ve got good momentum in Q1. And operationally, the rhythm of the business is looking good with the point out of Venezuela would be one risk to answer your question specifically.

[Jim Snyder:]

Thanks. It’s helpful. Yeah.

[Rick Simonson:]

We can manage that.

[Jim Snyder:]

Okay. And then as a follow-up. Just philosophically in the solutions segment, as you build more scale there with Milton [ph] coming on at the end of this year and then the other design wins feathering in, you get lot more revenue scale. How do you think philosophically about how you wanted to manage margins in that segment? Is there any reason to believe that margins couldn’t move significantly up from there and how do you think about the level of reinvestment that you want to put back into that segment to drive the business?

[Tom Klein:]

Yeah, Jim, I think we would stick with what we’ve said before on margins, which we came into the year with a trajectory that had started when we first went public that where we are talking about low-30s. We finished the year in 2014 in mid-30s and we’ve said that we are going to push them up into the high-30s and that 40% wasn’t a cap, but rather kind of our near-term visibility. As I talked about with things like Intelligence Exchange and some of the other solutions that we’ve deployed, we see big opportunities for reinvestment in organic growth by adding systems that this bigger community of customers can buy and also that customers that don’t use our reservation system can buy. So, as I talked about the Intelligence Exchange customers, that list that I mentioned, British Airways, Cathay Pacific, Southwest and Aeroflot, only Aeroflot long-term will be on the SabreSonic CSS. So it’s a big solution that we can sell into any carrier. So we like those type of opportunities for reinvestment, but again we think we can maintain those margins in the mid-term up in the high-30s and I would expect that as we get more scale, we will be able to revisit that number.

[Rick Simonson:]

Yeah, high 30s aren’t a count by any means. So, remember we are only starting to get what I would consider scale and hospitality solutions. We’ve achieved a certain level of scale in Airline Solutions, we can get more as Tom pointed out, that we are in early days of seeing the benefit of scale in hospitality that’s forms where we are in our medium term guidance and moving from the mid-30s to the high-30s, but you can see then how we might be able to take further advantage of that second pillar of the scale across solutions as we look further out.

[Tom Klein:]

I think, I ignored our hospitality business, which is growing faster than the Airline Solutions business, you know that’s a big TAM that we are selling into. We have a narrow set of solutions that we deal, with certainly on the airline side we would like to broaden those solutions. So, where we see opportunities to invest there we will.

[Jim Snyder:]

That’s helpful, thank you very much.

[Rick Simonson:]

Thanks Jim.

[Operator:]

Our next question comes from the line of Gregg Moskowitz with Cowen & Co. Your line is now open, please proceed with your question.

[Gregg Moskowitz:]

Hi, thank you very much good morning gentlemen. I guess first question is, it sounds as though bookings growth increased sequentially as you progressed through the quarter and that’s continued into April, can you just talk about how this activity compares to your typical Q1 or early Q2 linearity and then also just kind of wondering if there are any region to particular that you would highlight there?

[Tom Klein:]

Well I think it was kind of as we expected from a standpoint of year-over-year. We had some tough comparisons in the first quarter. We were anniversarying some big issues. We were anniversarying three things. We talked about most of last year, consolidation of American Airlines and U.S. Airways, and smaller airline contract into bigger one that puts some pressure on price in that contract. We had the beginning of the downturn in Venezuela last year, which is more or less anniversaried, but as Rick said we are just not collecting as much cash. So, we expected that the first quarter would be a bit of a recovery quarter, but we had it in these low single digit growth rates and expected that quarter to ramp up over the course of the year. And again, we’ve seen that happen as Rick said into April, but we are still only four months in, so we don’t want to get too far of our skies on how we think about the rest of the year, but the trend is going in the right direction and we point out, point to Europe where we grew almost 10 times faster in the market. We grow very profitably there and that’s – a lot of our focus is there, but I’ve said before we feel like we could take share anywhere in the world and we are knocking on doors everywhere in the world.

[Gregg Moskowitz:]

Okay, that’s helpful. Thanks Tom. And then also just wanted to go back to American Airlines and I realized obviously it’s impossible to nail down implementation timing at this standpoint, but just for modeling purposes, Rick I was kind of wondering if you could sort of put a finer point on at this stage when in Q4 you might expect that a cut-over to occur and then when you say that the, you know American Airlines SabreSonic revenue is incremental to the legacy part of that business, which is going away is it materially higher or just modestly so, just would be helpful if I get any more there, if possible?

[Rick Simonson:]

Yeah, Gregg it’s a multiple time more than the legacy revenues. So, very material in that regard, but again you don’t get the full benefit if you were just looking, brining on the x-millions of incremental passengers boarded with American, you have to offset that little bit by that legacy revenue that we are getting in. In terms of the timing, like I say we are looking at its still on time before the end of the year, but can’t be more precise with that as we work with our customer on that.

[Gregg Moskowitz:]

Okay great, thank you.

[Operator:]

Our next question comes from the line of Brian Essex with Morgan Stanley. Your line is now open, please proceed with your question.

[Brian Essex:]

Hi, good morning and thank you for taking the question, I was wondering if you could dig in a little bit on the solutions side of the business and in particular on the hospitality side, I’m just trying to get in like I said growing faster than the rest of the business and trying to get an understand of where you see the most opportunity in the pipeline, is it large enterprise of large hotel change with reference, nice reference of our deal with Wyndham now, or is it the sweet spot and kind of the lower hotel change and then I have a follow-up.

[Tom Klein:]

Sure Brian. Good morning, it’s Tom. Couple of things, we feel like we can sell into all segments of the market. We talked about that before. On the independent sides, I call it the long-tail of the market, we have things like InstaSite, which we released last quarter, which gives us an independent hotelier ability to get a website up and running in a week with all their fares loaded, all their unique property attributes. So, we think kind of that hotel in a box type technology for the long-tail is an effective way for us to sell, we’ve added resellers across Europe. We’re adding sales people in many of the emerging markets across the globe. So, we feel very good about selling into that long-tail independent segment. We just finished a hotel customer conference in Asia, where we had a lot of local Asian chains that’s kind of the next segment up and that’s been our sweet spot. We have by far the best solution for that mid-size chain, you know we’ve talked about that long customer list of companies like Mandarin, Shangri-La, Four Seasons really good luxury operators, but also anybody that’s in that 30 or 40 property space with a brand, we have great functionality for those chains. And so we will continue selling to that. Regionally, the growth should come ex-U.S. in that market. And then finally the enterprise segment where we’ve broken into with the Wyndham deal and we’re talking to a lot of the hoteliers in that top 20 space, you know largely in-source technology, I think the sales cycles there will be long similar to what we see, have seen on the reservation side and there will be a little bit of wait and see on how we do, but we feel very confident about our deal with Wyndham and what it will produce for them, I think it’s a great proof point for some of those other large hotels who just can’t do what they want to do with their technology to service their gas. I mean the industry does have a problem, I think they will outsource technology over time and I think we are best positioned to get it. To get the benefit of that.

[Rick Simonson:]

Hey Brian this is Rick and you know we’ve reported in the first quarter on the solutions total segment revenue increase of 15.9% year-on-year and as we said hospitality is growing faster and its growing faster than that in the quarter in Q1 and has to be in the combination of these two things driven by both the independent chain, the medium to small independent hoteliers where our business was first built-on, but also being contributed now in the enterprise side as well.

[Brian Essex:]

Okay. And then kind of a follow-up any opportunity or cross over into the travel network side of the business in getting more of that inventory on to the GDS platform, you know particularly as you know you’ve posted some pretty nice growth in non-air bookings just wondering how you look at kind of the non-air segment on the travel network and where potential opportunities might come from?

[Tom Klein:]

That’s a great question Brian and I don’t have an answer from a data perspective, but I will tell you practically what happens. As independent hotels move on to a central reservation system platform, and many times they are moving from low-tech to high-tech in one step when they make that move. They connect to all channels at that point. So, many of the independents that move on to – whether it’s our CRS or somebody else’s, they are getting connectivity to GDS channel that they didn’t have before so, as companies like Booking.com and Expedia who have very big sales forces are going out to all parts of the world and knocking on independent hotel doors, as they create demand for their services it creates a need for central reservation system even at an independent hotel, and then that central reservation system really opens up that hotel to a world of demand that’s outside what they have today. So, it is a very good trend for us and we do see property growth in the GDS because of the CRS trends.

[Brian Essex:]

Got it. And is that trend accelerated because of OTA consolidation or are you not seeing an impact from that?

[Tom Klein:]

I don’t think its accelerating. I think it’s been going on for some time as global hotel content is more and more connected to distribution channels around the world.

[Rick Simonson:]

So, I think, this is Rick, I think you can see those – I think we will see a little bit more of that impact going-forward to Tom’s point and [indiscernible] your question Brian in first quarter as you saw in our release we had air bookings growth of 2.7% year-on-year and we had non-air bookings of up 3%. So, that’s kind of the relatively ratio right now.

[Brian Essex:]

That was my question. Very helpful, thank you.

[Tom Klein:]

Thanks Brian.

[Operator:]

Our next question comes from the line of Bhavan Suri with William Blair. Your line is now open, please proceed with your question.

[Bhavan Suri:]

Hey guys nice job, can you hear me okay.

[Tom Klein:]

Yes, thanks Bhavan, how are you?

[Bhavan Suri:]

Great, very good. So, just to start off first on Etihad, it’s something that you guys have a great relationship and a partnership there, but we haven’t heard sort of anything about the Etihad partnership maybe for a couple of quarters and its impact to the pipeline for Sonic and for the Airline Solutions business. Just any update there would be great.

[Tom Klein:]

Several of the airlines that are in our implementation pipeline have a relationship with Etihad. We obviously have to sell in for those airlines separately, but they have a point of view based on the agreement that they have with us where they’ve used a very broad portfolio of our technology. They have a point of view that the business model improvements that we can provide across both revenue growth and cost management because of our system footprint, the existing footprint is beneficial. So they have been helpful to us, but Alitalia is an Etihad investment, Air Berlin is, Air Seychelles is and Air Serbia. So we have a lot of business in the pipeline that where they helped open the door for a discussion, but again we have to sell those deals independently. These companies are – Etihad is typically relatively small investor in these companies, so that we have to sell in for the company themselves but there is good activity there and again those deals are not just SabreSonic CSS deals. They are very broad footprint of technology deals.

[Bhavan Suri:]

That’s great. And then a couple of just quick housekeeping questions. On the analytics business, how are you guys pricing that?

[Tom Klein:]

We are pricing it on – really for the most part, we are pricing at the same way we’re pricing our other systems which is on a business metric, which is typically passengers boarded.

[Bhavan Suri:]

Okay. And then lastly…

[Tom Klein:]

And let me add on to that. The intelligence exchange platform can do a lot of different things. So it is priced on a passenger boarded basis but as applications are added to the platform, we can get increasing revenue per passenger boarded.

[Bhavan Suri:]

Got it. And that’s sort of a software-as-a-service delivery model, right?

[Tom Klein:]

Yes it is. It’s a software infrastructure that sits across all the systems inside of the airline and collects the data and makes it – basically analyze it and makes it actionable for the airline, and then it automates the action.

[Bhavan Suri:]

Got it. And then when you look at the SaaS businesses, the hospitality and the Airline Solutions businesses, just phenomenal margins for SaaS businesses comparable to say the traditional margins you might see in many of the other SaaS businesses. Of those stacks and support organizations and technologies, sales forces et cetera is there any leverage on the GDS and the Travel Network business? Is there any technology share or they are fairly, fairly independent when you put out those EBITDA numbers?

[Tom Klein:]

Yes. There is pretty significant technology sharing. So as an example, the most compute intensive system that we run is the pricing in shopping complex for airlines. So whether it’s somebody shopping on Expedia, whether they are shopping at American Express business travel, they are hitting the shopping system and that’s again the most compute intensive. That system is exactly the same across Travel Network and Airline Solutions as an example. There is a whole bunch of other services that you can imagine are also consistent. Things like ticketing, how we store data, how you create the customer record, those - so basically the profile system, those systems are shared across Travel Network and the airline reservations business. And increasingly, we are looking for ways to share them across the hospitality business.

[Bhavan Suri:]

That makes sense. Great. That’s it from me guys. Thanks and nice job again.

[Tom Klein:]

Thank you.

[Operator:]

Our next question comes from the line of Jason Kupferberg with Jeffries. Your line is now open. Please proceed with your question.

[Ryan Cary:]

Good morning. This is Ryan Cary for Jason. Just quick, looking at the Airline Solutions revenue per passenger boarded, I know in the 10-K you disclosed Airline Solutions revs, which implied 2% plus growth in revs for passengers boarded which was generally in line with 2013. How should we think about this going forward? Should we expect this to compress once the large roll on to current 2016 and continuing going forward? Or how should we look at this?

[Tom Klein:]

Ryan, in 2015, we’ve got American Airline coming on at the end of the year and of course being the largest airline in the world, as we said before, that would come in at lower than the average. But as you look at the other implementations that we had across there, we’ve got a very good mix that we feel in the longer-term, but again revenue per passenger boarded is solid and is part of what supports the fact that as we continue to add on scale, we are going to be able to bring the EBITDA margins up into the high 30s and not a cap as we talked before. So that’s how that plays out.

[Ryan Cary:]

Great. And any update on the $500 million Travel Network acquisition expected to close in 2Q. Just wanted to ask if you could provide any more information on the acquisition or maybe give an update on timing.

[Tom Klein:]

No, we can’t. It’s possible, it remains that way and we will update if and when we have something to update, and I think I covered on cash that we have and how that would be applied if it happens.

[Ryan Cary:]

Great. Thanks for taking my questions.

[Tom Klein:]

Thanks, Ryan.

[Operator:]

Thank you. And we have time for one more question coming from the line of Abhey Lamba with Mizuho Securities. Please proceed with your question.

[Jim Shaughnessy:]

Hi guys, thanks for squeezing this in. This is Jim Shaughnessy on for Abhey. Real quick at the low end of your targeted debt to EBITDA range. Just wondering how we should think about that going forward? Is 3.0, 3.5 still the range we should think about or is there opportunity to lower? Some color on that?

[Rick Simonson:]

Yes, Jim. As we said, we targeted to get to 3.0 to 3.5, we’ve got to the bottom of that now. We think 3.0 around there is a good target for optimal leverage right now for the benefit of the equity shareholders. We think that takes advantage of the debt and the tax benefits, the lower cost of debt right now and lowers our total cost of capital. And we’ve shown that we have plenty of flexibility and a strong flexible balance sheet to manage it about that three times level. And remember, we’ve - if that does allows a little bit of flexibility, if in fact we have a little bit of M&A to stay within those ranges and that operationally with the cash flow and the growing cash flow that we are reporting, you can bring it right back down to that leverage. And then as I have said before, we have a dividend we are paying, we have a target payout ratio that we can always look to increase that slightly. And right now, we are not in the business of buying back shares. We’ve just kind of gone public and done our first follow-on, so that would be something a bit later to consider perhaps.

[Tom Klein:]

Just from an M&A perspective, we are actively looking at things out there because we think that this platform that we’ve built not just the technology platform but an ability to sell globally, the ability to deliver globally, and ability to have developments done on a local level or on a global basis give us just a really strong platform to plug in the services for our customers. So we are active at looking at tuck-ins certainly across the solutions business and we hopefully find gems out there that we can grow both from a revenue standpoint and get the cost effect in this sort of platform to really make M&A mix sound for us.

[Rick Simonson:]

And we’ve got some 2016 debt coming due that will need a little bit of cash for that.

[Jim Shaughnessy:]

Got it. Thanks a lot. And one quick follow-up if I may. Can you provide any sort of color around reaction from some of the other potential customers in the industry as a result when you’ll be using a ramp up in conversations are built in interest as a result from some of the larger chain?

[Tom Klein:]

Absolutely. People want to know more about what we are doing and we’ve obviously been out knocking on doors and having conversations, but you got a good credibility boost when back-to-back in two quarters we announced the property management system deal and then the Central Reservation system deal with the SynXis Enterprise Platform as the biggest operator in the world. I think [indiscernible] is very well respected from a standpoint they bill it, operate and with 1,000 properties in China, it’s a very interesting place for us to get as a first day win in that sector and certainly the rest of the sector is taken notice, and we are having good conversations with number of people.

[Jim Shaughnessy:]

Great. Thanks a lot.

[Operator:]

Thank you. With no further questions in the queue, I will turn the call back over to speakers for closing remarks.

[Tom Klein:]

First of all, as we just past the one-year anniversary as a public company, I want to personally thank everybody for your support and for your interest in Sabre from all of us here on this end. We are pleased with the strong first quarter results and we expect strong full year results and increased momentum as we look at the years ahead. And again, we appreciate your interest in Sabre and we look forward to speaking to all of you again sooner either in person or next quarter. Thanks so much.

[Rick Simonson:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Have a good day everyone.