Sabre Corporation
Q3 2015 Earnings Call Transcript

Published: 29 Oct 2015

[Operator:]

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

[Barry Sievert:]

Thank you, Latoya, and good morning, everyone. Thanks for joining us today for our third quarter earnings 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. Throughout today’s call, we will be presenting certain non-GAAP financial measures, which have been adjusted to exclude expenses and other gains or losses related to restructurings, 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, disclosures of our guidance including revenue, adjusted EBITDA, net income, cash flow, CapEx and earnings guidance; our expected segment results, the implementation and effects of recent agreements, products or acquisitions, 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-Q for the quarter ended June 30, 2015, and 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 Senior Vice President of Finance. Tom will start us off with a review of our strategic and commercial performance. Rick will then offer perspective on our financial results and the 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:]

Thanks, Barry. Good morning, and thank you for joining us today for our third quarter earnings call. As we hit the homestretch going into the fourth quarter, it’s clear that our focus on innovation and operational intensity has driven sustainable momentum that we expect to carry us into 2016. We’re the leading innovator in the industry and our results demonstrate the value of that innovation for our customers and for Sabre. In Airline Solutions, we generated more than $350 million of contracted sales value for new solutions launched since our IPO. Importantly, we built many of those innovations to the NDC XML standard to meet the emerging needs of our customers in critical areas like retailing, personalization, and data and analytics. That same spirit of innovation is resulting in new capabilities in our hospitality – for our hospitality customers with new solutions like the SynXis Enterprise Platform and the SynXis Booking Engine in context suite. We’re helping our hoteliers to achieve their revenue, brand, and operational goals. Hoteliers have responded to our unique value proposition as evidenced by wins through September at 200 plus customers, representing more than 1,200 properties. These customers include leading hoteliers like Fontainebleau Miami Beach, Four Seasons, Oakwood Worldwide, Oakwood Asia Pacific, and Banyan Tree hotels. And our progress with the largest hotelier in the world, Wyndham hotels continues to go well. It was best said by Wyndham CEO, Steve Holmes on their recent earnings call, and I’ll – this is what Steve had to say “After successful pilots this summer in spring, we began to rollout this month of the property management system and are well on our way towards achieving full implementation by the end of 2016. We’re also well into planning for the migration of the Wyndham Hotel Group’s four central reservation systems into one Sabre system. And we’ll begin moving our first brand to the new system later this quarter” All of this reinforces our position as the leader in next-generation hospitality technology. During the quarter, we implemented solutions for 600 hotels around the world and continued to build on our sales implementation pipeline. Now continuing on the topic of implementations for the – for a moment, in Airline Solutions, we completed the technology merger of the American Airline and U.S. Airways reservation systems on October 17. American Airlines carries more than a 190 passenger – 190 million passengers annually, making them the largest customer in the SabreSonic community and the largest airline in the world. This highly sophisticated migration involves systems integration, data migration, extensive testing to allow for the sunset of the U.S. Airways system just after midnight on October 17, and the immediate operability of the SabreSonic system across the world’s largest airline. Our team did an outstanding job in deep collaboration with American Airlines personnel to ensure successful technology merger that meets the needs of American Airlines and their customers. This initiative was close to flawless, arguably the most successful technology merger the industry has ever seen. It’s pretty positive of our ability to take lessons learned, our own, and those of the industry, and apply them to make our business better, and of course, a great demonstration of our ability to execute unique large-scale projects. And as recently announced, we’re following up that great work with American by being the first EDS to implement Americans paid seats into the Sabre Travel Network through the NDC XML protocol. As we discussed, we expect our revenue growth in Airline and Hospitality Solutions to step up in 2016 for the mid-teens to the American Airlines and other implementations. Our contracted implementation pipeline for SabreSonic and broader portfolio deals includes Alitalia, Air Berlin, Copa Airlines, Air Seychelles, Air Serbia, and LATAM. These airlines will bring an additional 110 million annual passengers boarded through SabreSonic platform, bringing the total incremental passengers boarded, including American Airlines to 300 million, on a 2015 base of approximately 560 million. And we also have a large pipeline of hospitality implementations, in addition, Wyndham. At Sabre Travel Network on July 1, we completed the acquisition of Abacus, giving us a leading position in Asia Pacific, the world’s largest and fastest growing region for Travel. With four months of integration activity under our belt, we’re executing on three areas of opportunity. First, we’ll better align investment with our highest growth priorities. Prior to our acquisition, the Abacus joint venture had 12 voices with a myriad of priorities. With our priority in Asia Pacific now being crystal-clear, we’ll grow by providing innovative technology and the best service model in our industry, and we’ll better align investments in markets like India, where we believe the joint venture lack optimal exposure. Secondly, we’ve immediately strengthened our value proposition to the world’s large global travel management companies and corporations. This is a customer segment in which Sabre has historical strength, and we’re already seeing traction and discussions that bring consistency to our global value proposition. And third, Asia Pacific, as I said is the fastest growing region in the world with expected growth rate of 6% to 9%. Based on our capabilities, we see opportunities to increase share and we expect above market growth rates over time. The integration work is going very well, because Sabre already served as a technology backbone for the business, our technology integration is relatively straightforward. The bulk of the work has been related to implementing our sales and account management processes and disciplines, branding as Sabre across all markets, getting the right organization and skill sets in place, and as I mentioned earlier aligning our investments with our biggest growth opportunities. In the third quarter on a like-for-like basis, Sabre Asia Pacific bookings increased 6%. The macroeconomic slowdown in China has impacted some markets, but overall the region continued to see growth in the range of our expectations. Turning to the third quarter. Results were in line with our expectations positioning us for strong full-year results and a great set up for 2016. For the quarter, total company revenue was $785 million, a 17% increase. Adjusted EBITDA increased 12% to $242 million. Adjusted earnings per share for the quarter increased 26% to $0.29. Airline and Hospitality Solutions revenue grew 5% and adjusted EBITDA grew 4%. As expected, growth in the third quarter was driven primarily by growth in our installed base. We anticipate reacceleration of top line growth into the mid-teens in 2016, when we begin to recognize the full run rate benefits of the American Airline implementation and as we execute on the implementation pipeline that I mentioned earlier. In Travel Network, revenue increased 22% and adjusted EBITDA grew 19% for the quarter. The July 1st Abacus closed and continued growth in North America and EMEA were tempered by some declines in Latin America, especially in Brazil, as well as continuing softness in Venezuela. Globally, our third quarter share was up, it was 37.1% that’s a 1.1 point gain from a year ago period. The strong operational performance, our customers positive responses to our solutions, and our forecasted growth that’s already been contracted are all affirmations of the discussions we’ve had with you about our company. The technology company that has recurring revenue, good visibility into future revenue, and the ability to grow revenue in the high single-digit on a global scale over multiple years. During the first nine months of the year, we improved our competitive position. We strengthened our business to divestitures and acquisitions. We’ve innovated at a pace unmatched in the travel sector, and effectively executed at scale on mission-critical customer projects. I believe, we’re very well positioned for continued strong growth rates going forward, and we’re very focused on carrying our momentum through the end of the year and into 2016. And with that, I’ll turn the call over to Rick for some additional commentary on the quarter and the forward outlook.

[Rick Simonson:]

Thanks, Tom. Looking more closely at Airline and Hospitality Solutions in the quarter, a 142 million passengers reported using our SabreSonic reservation system, a 4% increase year-over-year all from our installed customer base. Airline and Hospitality Solutions revenue grew 5% for the quarter to $219 million. Contributing to the rise in revenue was the increase in our airline customers passengers boarded and continued strong growth in Sabre Hospitality Solutions. Adjusted EBITDA increased 4% to $85 million, resulting in an adjusted EBITDA margin of 38.9% for the segment, essentially flat year-over-year. In Travel Network, bookings increased nearly 30% in the quarter. Growth was driven by the full quarter of Abacus, now Sabre Asia Pacific, as well as strong growth across our base business. So excluding the positive impact of the Abacus acquisition, global bookings increased a strong 6.5% in the quarter. North American bookings grew – growth increased 6% in the quarter, and our strong momentum continued in Europe, Middle East and Africa, where bookings driven by new agency conversions and solid share gains increased 15% in the quarter. This is compared to 2% in the region overall. As Tom mentioned on a like-for-like basis, our Asia Pacific bookings increased 6%, despite the slowing Chinese economy and some resulting impact on Travel in those parts of the region. In Latin America, continuing weakness in Venezuela and Brazil led to a 4% decline in bookings year-over-year. So supported by our strong overall bookings growth, Travel Network revenue increased 22% and adjusted EBITDA increased 19 in the quarter. Excluding the impact of consolidating Sabre Asia Pacific, Travel Network revenue increased approximately 7% in the quarter. Moving to Sabre’s overall income statement. The big third quarter growth drivers were the acquisition of Abacus and strong growth in core Travel Network and Hospitality Solutions. So a quick recap of our consolidated quarterly results. Revenue was $785 million, an increase of 17% year-on-year. Adjusted gross profit totaled $347 million, an 18% improvement from the same period in 2014. Total adjusted EBITDA increased 12% to $242 million. Adjusted EBITDA grew slower than revenue, due to primarily to the Abacus consolidation and integration and as well some cybersecurity expenses. Adjusted net income grew 29% to $81 million. And Sabre consolidated adjusted earnings per share were $0.29 for the quarter, up a strong 26% year-over-year. Moving to the balance sheet and cash flow, from Sabre consolidated adjusted of $242 million, we generated $47 million of free cash flow, an increase of 40% Year-to-date, we’ve generated free cash flow of $187 million, well on our way toward meeting our annual guidance of $240 million. Total adjusted CapEx for quarter three was $95 million, including capitalized implementation costs of $20 million. Implementation fees collected from customers totaled $27 million. We continue to expect capitalized implementation costs and upfront implementation fees collected to roughly offset each other for the full-year. Total net debt was $3 billion as of September 30. That reflects the strong free cash growth and the proceeds from the Travelocity sale, offset by the funds used for the Abacus acquisition. Our net debt to trailing 12 months adjusted EBITDA ratio at quarter end was 3.3 times. Regarding our forward outlook. Our strong first-half allowed us to raise our full-year guidance after quarter two. With Q3’s solid results coming in as expected, we are able to confirm full-year 2015 guidance while narrowing the range. For the full-year, we expect Sabre revenue of between $2.955 and $2.975 billion. In Airline and Hospitality Solutions, we expect full-year passengers boarded growth at or slightly above the 10% growth we previously communicated. And revenue growth is expected to be towards the higher-end of the 9% to a 11% range we discussed all year. As a reminder, again, in Q4, we expect much stronger passenger boarded growth with the addition of American Airlines earlier this month. Our expected expectations for revenue and EBITDA growth in the fourth quarter are a bit above what we previously communicated. We now expect Airline and Hospitality Solutions revenue growth in the mid to high single-digits and EBITDA to be flat to up modestly year-over-year in quarter four. The variance between Q4 passengers boarded growth and solutions revenue and EBITDA growth is primarily a function of the anniversary of a strong 2014 fourth quarter and the late September end of our previous American Airlines contract, which was running approximately $10 million for the quarter. This ended more than two weeks ahead of the new solution go-live as previously called out. We have very good visibility into our Airline and Hospitality Solutions revenue pipeline and continue to expect growth to revert back to mid-teens in Q1 2016. Moving to Travel Network. Before the positive impact of the Abacus acquisition, we continue to expect strong full-year bookings growth of approximately 6% and revenue growth of more than 5%. These are well above our initial guidance this year for bookings growth of around 3% and revenue growth of 4%. Now including Sabre Asia Pacific, we continue to expect full-year Travel Network revenue growth of 13% or more on bookings growth of approximately 17%. In Q4 specifically, we expect strong Sabre global bookings growth consistent with Q3 trends. And this is driven primarily by continued strength in North America and Europe, Middle East, Africa. October has been a strong start to the fourth quarter and we expect strength and diversity of our global Travel Network business to allow us play through some pockets of macro headwinds in Latin America and Asia Pacific, as Tom referenced. Turning back to Sabre consolidated results. You’ll recall that we discussed a cybersecurity investigation last quarter. While our investigation is continuing, we have found no evidence of compromised ECI, PII or travel information to-date. But as you can well imagine, the investigation and remediation efforts require a surge of some millions of dollars of incremental spending above and beyond our normal course expenditures from network security and the security features we build into all of our product offerings. This surge spending impacted our third quarter results in an amount of a few millions of dollars, and is expected to have a similar impact in the fourth quarter. While we view these quarter three and expected quarter four costs as incident-specific and limited to those two quarters, they are fully loaded in today’s reported results and are incorporated in our expectations for the full year guidance. You can do the math and see that without these security-related expenses, we would have been at the higher-end of the range of Q3 adjusted EBITDA expectations and similarly for our full-year 2015 guidance range. So with the continuing good operating momentum of our two segments and despite absorbing some of the mild macro headwinds and additional security costs, we are reiterating full-year adjusted EBITDA guidance, while narrowing the range to between $935 million and $943 million. Also, we are narrowing our range of expectations for full-year adjusted net income between $293 million and $303 million, and adjusted EPS in a range of $1.6 to $1.10. We continue to expect full-year adjusted free cash flow to be more than $290 million, and free cash flow to be more than $240 million, with the primary difference being essentially the last of the American Airlines credits. Full-year GAAP CapEx is expected to be approximately $260 million, and capitalized implementation costs of approximately $75 million. In summary, the third quarter results were very solid and consistent with our expectations. We expect to meet our full-year 2015 guidance with continuing strong underpinnings of growth in our Travel Network business growth and that’s growth in bookings, revenue, and share. Our Solutions businesses are performing well and as expected. This will give us additional momentum as we enter 2016 when the full run rate benefits of the continuing Airline and Hospitality Solutions implementations really begin to flow. With that, I’ll turn it back to you, Tom.

[Tom Klein:]

Thanks, Rick. We’ve made significant progress so far this year with important competitive, financial, innovation, and strategic milestones throughout the first three quarters, strengthening our company across nearly every measure. We expect a solid finish to the year that will give us a terrific step up into 2016, as we continue to deliver innovative solutions that will enable our customers business strategies. With that, I’ll ask our operator, Latoya, to open the call to your questions.

[Operator:]

Thank you. [Operator Instructions] The first question is from John King of Merrill Lynch. Your line is open.

[John King:]

Great. Thanks very much for taking the question. I just have a couple of follow-ups on the GDS business, if that’s right, guys. So the U.S. business obviously is pretty strong there another 6% in the quarter. Can you just talk about the drivers behind that? It feels a little bit about the industry growth, so are you taking share there, and do you see that as being sustainable? And then maybe on the flip side obviously Latin America a bit softer, how long lift do you see that being and could it get worse for the quarter, I guess, that was the first one. And then perhaps just on the pricing side of things again for the DDSI, I think slightly up again in the quarter, what was the driver behind the pricing in GDS was that mix or is there anything else you are seeing from pricing perspective? Thanks.

[Tom Klein:]

Thanks John good morning. This is Tom. I have a couple of things. I think in regard to North America, two things going on there. One is, yes, we are taking some share. We also have as we’ve talked about we have a good franchise in the corporate market, which has been strong, meaning, we have a much higher share than even our natural share in the market. We have good market share with our biggest customers. So, some of the strongest players in the market are growing a little faster than the rest of the market. So in generally we’ve seen a good lift across North America in all segments and again if share growth, as well as same customer growth, our share is up about 2 points. In Latin America, the story in Venezuela has gotten no better. And I think that’s consistent across every business I read about. I think Brazil, Brazil has been soft here in the last quarter. And while it’s hard to predict that it will get better quickly, I’m not sure that it gets much worse. They were down high double-digits almost up in the 20% depending on whose numbers you look at. So Brazil pretty troubling, but I think, again, we have a global business. We have good strength across the business in other markets, and we can absorb that kind of shock in some of these – some of the single market impacts that happen around the world. And on pricing, I think, we’ve just held pricing, and I don’t think there’s much more to say there.

[Rick Simonson:]

Just the mix gets strong mix and no real big changes there.

[John King:]

And maybe if I can just get one follow-up on the solutions side of the business, the Airline Solutions obviously a big period of deployment now for you. But if I can just ask I mean, how is the pipeline looking, obviously you can [indiscernible] deployments, but do you think there’s more upside there from volumes or they’re going to be more up-sell from now on? Thank you.

[Tom Klein:]

No, I think it’s a combination of both, John. We’ve talked about selling into an opportunity in the market of about, let’s call it $650 million or so past quarter that we think are going to be up a bit in the next 18 to 24 months. We’ve talked about before that’s a third-party consultant number that we generally agree with. So we have a very active sales pipeline across both hospitality, as well as Airline Solutions, and we think there’s more SabreSonic business to go get, as well as the opportunities to sell up across the portfolio.

[Rick Simonson:]

Yes, John, I would emphasize as well. Remember in the Hospitality Solutions we have two ways to expand there, both geographically, where – remember to-date our mix in the Hospitality Solutions has been closer to 70%, 30% North America versus rest of the world in terms of the revenue. And, again, we see that really switching to 40%, 60% over time, 40% North America 60% rest of the world. And as a function has both independent space where we built our lead position. We have a lot of room to grow in the markets outside of North America. And then secondly in the enterprise space, as both best evidenced by Wyndham and some of the others that Tom mentioned. We feel that we’ve got a multi-year lead over anybody in that as for the first one to have cracked into the enterprise space and again that’s a global market really not to find so much by region.

[Tom Klein:]

Yes, and I’m going to come back one another thing I said in the script, John, and that is, we’ve talked a lot about the 29 products that we released since our IPOs. This is the first time we’ve talked about revenue generation out of those products. $350 million of contract sales for brand-new products that we have the biggest portfolio in the industry, we’re adding to that portfolio, so we have more opportunities to sell into all of our customers sets and we’re really excited about the level of innovation that the teams producing in the pace of the new product launches that we have coming out of the businesses.

[Rick Simonson:]

What I guess is confidence to reiterate as we said mid-teens revenue growth starting in first quarter 2016 and for our expectations in the total year of 2016 built off of what our plan was this year to position for that to set up and then digest that next stage of growth that comes for the positioning with implementations and selling that their backbone of solutions here in 2015.

[John King:]

Got it. Thanks, guys.

[Tom Klein:]

Thanks, John.

[Operator:]

Thank you. The next question is from Mark Moerdler of Bernstein Research. Your line is open.

[Mark Moerdler:]

Thank you very much, I appreciate and it looks like a very nice quarter so congrats great guys. On the travel network, the margins are down a bit year-over-year. Is that mostly due to the Abacus integration how do we see that and how soon do we see that’s starting to change and then I have a follow-up?

[Rick Simonson:]

Yeah Mark. This is Rick, and indeed you have it right it is Abacus most for two reasons. One we have some expenses that were essentially acquisition expenses that we absorbed. And then as we said that business on a inherited basis has a margin structure a bit lower than our overall and lower than what the data processing revenue was coming in on the previous and as we said that on itself Abacus would bring about two point margin reduction or else equal when it’s integrated into TN. And so you saw that now given the first quarter, so it’s those two things are the primary drivers for that Mark.

[Mark Moerdler:]

Excellent and on the Airline side again a bit of weakness on the margin is that the predominantly all the work mentioned on the American Airlines deal or is there something else driving it?

[Rick Simonson:]

Well, I guess you pointed the lack of positive leverage.

[Mark Moerdler:]

Yes, lack of positive leverage, that’s correct.

[Rick Simonson:]

Yes, it’s – well, look overall on solutions we are at the high 30’s and flat year-on-year, but I think your point is – it is that we are absorbing some cost there, but also remember we had some of the drop off of the revenue that we’re getting on the American deal before we start to get the revenue from the reservation systems. So you had 2.5 weeks there of where you really weren’t getting that incremental. So we want to see that flush completely and so we get to fourth quarter where we have a clean comp.

[Mark Moerdler:]

Okay, that makes more sense, because I was thinking that the hospitality as it continues to interrupt probably gets a little more scale and so not like we’re going to expect to see huge margin improvement, but with the thought here and so I guess that’s what’s driving at the offset?

[Rick Simonson:]

Yes, and we’ll see that over the mid-term arc here absolutely, but rest assured we’re investing appropriately and strongly in the hospitality right now where have that lead and some of that actually is there, in there in the quarter as we’re ramping up for and implementing Wyndham and as was characterized by their CEO as well as for instance Four Season. So you need to do that before you then get that benefit of increasing margins where you start to see it really materialize in hospitality and that’s exactly where we are and that’s our mid-term expectations.

[Mark Moerdler:]

Beautiful, one more quick question, on the hospitality side you are still seeing the lead you have in competitive, from a competitive point of you maintaining do you see anything that any changes in that respect any ability to be able to expand the lead?

[Tom Klein:]

Yes, I mean Mark I just don’t think anybody out there is doing types of things that we’re doing and I think Steven Holmes comments were a great validation as I said on either the last call or the one before that. We signed these contracts that the PMS the property management system contract was signed late in 2014, which were implementing those properties right now and we’re starting to see revenue from that contract right now. And Steven, said they have $0.04 of reservation systems that are consolidated to our system and we will start to see revenue from a contract that was signed in first quarter of 2015 and fourth quarter 2015. Competitively we’ve seen announcements multi-years ago that aren’t producing revenue today. So, I think we just have – we have a very big advantage in the market we need to work hard to keep that advantage and that’s going to be through executing on things like Four Seasons and Wyndham as well as many other implementations we have across our customer’s and also continue to innovate, but we have real products that going customers today and producing revenue today on a base of very good business we’ve talked about the broad set of brands that we have especially in the luxury segment with brands like Shangri-La and Mandarin Oriental customers that have very high standards. And we just continue to win the marketplace and we really like this business. We think we’re redefining the space.

[Mark Moerdler:]

Excellent. Thank you very much.

[Tom Klein:]

Thank you, Mark.

[Operator:]

Thank you. The next question is from Ashish Sabadra of Deutsche Bank. Your line is open.

[Ashish Sabadra:]

Hi. Yes, good momentum in the Travel Network business, good to see that solid momentum going there. On the solutions side as well, I was just wondering if you could help us parse the mid single-digit growth, and that’s going to expand going forward, and good to hear about the mid-teens growth in the first-half of next year? Just help us parse the different streams like the reservation business was this commercial operation and the hospitality, how should we think about underlying growth drivers?

[Rick Simonson:]

Yes. On Airline Solutions we had the passengers boarded growth was on the base, right that was a 4% growth there on the installed base in the quarter. And as you would expect and then that steps up into the 30% range once we – later in American Airlines. So that was as planned and again the revenue as planned there and we’ve talked about all year how this is, we’ve digested a step function change implementations that happened in a couple years earlier. We had no implementations up to this point go-live in Airline Hospitality until the recent October 17th American Airlines. And then you’ll start to see that benefit those growth rates. On Hospitality, it’s a little less lumpy in that regard, because the implementations come in a time finding rather than a iron curtain cut over as they do in airlines and that was best exemplified by the Wyndham comments of how that’s layering in there. So, again, it’s spot on plan. It again has the benefit of, I think, the business there with a good visibility, reoccurring revenue. When we sell in solutions, we have a very good handle on when those are going to start to drive the metrics of whether there are passengers boarded hotel rooms, reservations made, and then therefore revenue. And Q3 came in really spot on with what we expected, and just a little bit even better in solutions. We like that attribute and that it gives us great confidence of how that will step up in the first quarter 2016 and the fourth quarter again, we have very good visibility and therefore the ability to layer in that full-year guidance.

[Ashish Sabadra:]

That’s great. That’s a great comment, Rick. Just quickly Lufthansa, on their earnings call, they mentioned that they’re not seeing any headwinds in their home market, but they are seeing headwinds in the international market. From your vantage point of you, have you seen any impact from the Lufthansa distribution charge?

[Tom Klein:]

Yes, I’m not going to talk about specific impacts on any of our customers. I will say that, I’ve – for 20 years now sold software to airlines that helps them optimize their business and consulting services for them and have a very strong view that, when you’re not price competitive you lose business. And I think that holds true across this industry and most industries, and that’s what we’ve been doing.

[Rick Simonson:]

For our business, obviously we talked before the Lufthansa Group overall accounts for less than approximately 2% of our bookings. And, again, we think those are spending primarily in the GDS whether they stay on Lufthansa or move to other competitive airlines due to price. As we talk a portion of nothing new to end there and we had a great Q3 in Travel Network overall. We expect a strong continuation in Q4 as I said along the same trends of Q3. And we’re already deep into our mid-term target range of that 46% top line growth and feel real good about the state of that business.

[Ashish Sabadra:]

That sounds great. Maybe one final question for me, it was about the instant bookings like trip announced an instant booking deal with price line as well as booking, instant booking Wyndham. I was just wondering if you could provide your thoughts around puts and takes for your GDS, but more importantly for your solutions business, what does that mean, if anything?

[Tom Klein:]

Yes, I think for our Solutions Business it’s opportunity to provide our, in this case our hoteliers with another alternative channel for distribution. And there’s a lot of things being tried in the hotel space around diversifying count distribution or some channels that equate robust and I think hoteliers would like a little more balance in their distribution overall. They have a lot of concentration many of them do in some areas that they’d like to change. So, it is an opportunity for hospitality solutions business, I don’t think that it has much impact on our GDS business and it’s targeted different set of customers.

[Ashish Sabadra:]

That’s great. Thanks.

[Tom Klein:]

Thank you.

[Operator:]

Thank you. And the next question is from Jim Schneider. Your line is now open.

[Tom Klein:]

Hey, Jim, you there?

[Operator:]

Please check this if your line is on mute.

[James Schneider:]

Yep, hello, good morning. Thanks for taking my question sorry. I was wondering if you can maybe talk about your expectations for the evolution of EBITDA margins in the solution business over time, clearly you got some implementation costs ahead of new wins ramping up. So, how should we think about whether those implementation cost roll off as the new revenue comes on. And can you maybe talk about the longer-term objectives for a solutions margins and where those could go?

[Rick Simonson:]

Yes, happy too Jim. So let’s step back again to 2013 we had in the solutions group that’s Airline and hospitality segment EBITDA margins about 30%. And we said that those would over the period of 2014, 2015, 2016 and then moving into 2017 move to the mid-30s and then move to the high 30s. And for this year, we expect it to be in the mid to upper-mid of 30s within right on that and then the operating in the high 30s for the full year in by 2017, but that not being the cap on where we can go, because again we’re getting these new each time we’re getting a small step change function in the run rate of the overall sustainable margin. We had a great margin in Q3 that was already in the high 30s, I mentioned before don’t get too carried away with one given quarter and really expect to be in that upper-mid 30s here as we go across the rest of this year and then into 2016 stepping up then as we start to get the benefit of these implementations and digest that next level of investment into it. But again you look at our model and continuing increase in scale that were getting with that as the solutions business becomes a $1 billion plus business that’s growing it’s scale at a 12% to 14% rate over the medium-term. There’s no reason why given those facts and where we are specifically and then more generally looking at some other analog software SaaS businesses that you absolutely have a possibility and should be able to drive this into the 40s. So that’s how we see that.

[James Schneider:]

That’s helpful. Thanks. And then maybe Tom, just follow-up in terms of 2016 and the pipeline of potential new customer wins on the solutions side you could see coming on. Can you maybe talk about any kind of quantitative numbers of new customers that might be coming up for bid in next year that might be or certainly over the next few quarters your visibility on that could drive longer term growth?

[Tom Klein:]

Yes, Jim, I’m not going to get too far into 2016 here I think I’ll just stick with what I said earlier, we were selling into what we think is about somewhere in the neighborhood of 650 million passengers boarded that means that those conversation could be fairly mature where we’ve already put an offer on the table and its being evaluated to a people we’re working who might not be serious about a conversation until sometime into 2016 or even into 2017. So, I think it’s a little early to be talking about 2016 we’ll plan on doing that maybe later this year.

[Rick Simonson:]

I think, I want to reiterate that we’d like our competitiveness right and we have the ability to be in and evaluate every, every deal essentially out there as we’re one of the clear leaders there and then have the ability to sell other solutions around any reservation system whether they’re using our Sabre sonic reservation solutions, whether they’re using an internal kind of a legacy system or they’re using one of our few competitors systems.

[James Schneider:]

Thank you.

[Tom Klein:]

Thanks Jim.

[Operator:]

Thank you. And the next question is from David Togut of Evercore ISI. Your line is open.

[Anthony Cyganovich:]

Hi, this is Anthony Cyganovich on for John for David. In the travel network business you continue to gain market share in EMEA, how sustainable is that over the next two years and what are the drivers?

[Tom Klein:]

Yes, this is Tom, we’ve – look we we’ve been I think it’s very sustainable we’ve been at it for a couple years now and we said a point-to-point and a half I think at some point recently we’ve been above that, but we think that 1.5 to 2 points a year is achievable. We think we have the right product for the European market in the Middle Eastern market where we’re under rated in places like Africa and in some markets in Europe where we haven’t participated fully we’ve thought before we’ve opened the dozen new markets here in the last 18 months. And we should start to see fruit from those investments. So, we feel very good about being able to continue to grow our share there. We think we’re competitive everywhere in the world we expect as I mention earlier in my comments that we expect better than market growth in Asia-Pacific over time as we get our integration work done. So, we feel like we can take share everywhere in the world and we should continue to see strength in EMEA.

[Anthony Cyganovich:]

Okay. Thanks. Just a quick follow-up could you quantify the expense associated to the cyber security investigation?

[Tom Klein:]

As I said in the third quarter, some few million dollars we expect the same in Q4 so what’s few millions it means it’s a little more than three and less than 5.

[Anthony Cyganovich:]

Okay. Thanks a lot.

[Tom Klein:]

All right. Thanks.

[Operator:]

Thank you. And the next question is from Brian Essex of Morgan Stanley. Your line is open.

[Brian Essex:]

Hi, good morning and congratulations on American that’s huge and we are all watching the news that weekend and no news is good news.

[Tom Klein:]

No news is good news it’s right. Brain. Thanks to you now thanks for the acknowledgement.

[Brian Essex:]

No that was definitely a big undertaking. So, I understand the effort that must have taken, a question on Abacus as we look at the Asian market or adding this into our models. Could you help us understand maybe the pricing that that you have in Asian market? How that compares to the other regions and how we might think about, I understand that administratively you got some duplicate costs, but how is that on the pricing and gross margin front in that region?

[Tom Klein:]

Yes, Brian. Thanks for that. As you said before in the four regions kind of goes as follows, the North American is the most competitive region and therefore has the lowest gross booking fee and the lowest net booking fee. And on the other end of the quartile you have the Europe, Middle East, Africa market that has the highest of both gross fee and the net booking fees, and right in between you literally have Latin America and Asia Pacific become similarly with one another and between those two bar bells. So that that’s where what it’s been in Asia Pacific now, our TM Sabre Pacific market, there isn’t any change in that because we acquired if fully. And then in terms of the gross margin and the operating margin as I mentioned for it is at a little bit lower-level businesses and has that all else equal two point drag on our segment margin in travel network that I talked about, but again what we’re going to do is work to try to improve that on the areas that we can in terms of G&A costs and also some of the cost related how you deliver the technology after we do some onetime surge spending as we talked about some CapEx to get the investments in the right order, the right priorities as Tom talked about. So, we have opportunity to try to work that identify some of the synergies that we expect to get from that fully in 2017. So we really need to get through since July 1, your Q3, Q4 and across 2016 before we should be talking about any kind of possible difference in what the margin profile is hopefully that addresses both your pricing question and the margin question.

[Brian Essex:]

Yes, I know that’s helpful. And then I had follow-up hospitality, one of the things certainly since the IPO that’s been a pleasant surprise is the number of luxury logos that we’ve seen kind of come out of your pipeline. I was wondering if you could maybe discuss and I understand some of this is, it is a new functionality that you rolled out since then, but how do we think about luxury versus maybe over the lower end mix of hotels you may have in there. And incrementally, I guess, what incremental margins can we expect from those deals? And maybe you help us understand what are the most popular features that are incremental to the platform that are being adopted, whether it’s loyalty programs, or what have you, just to get a – wrap some context around some of the deal velocity we see coming out of your pipeline how that might affect the mix and incremental margin in that business?

[Rick Simonson:]

Yes. So, Brian, let me just start with the customer set, which we’ve highlighted and I’ve often highlighted some of those known luxury brands, because we really do have a terrific representation of customers there. I also think they have – those customers have a very high expectation for service and how to use the technology and service to their customers. So they’re a good representation, because they really use the full functionality of the systems that we provide. But we’re certainly not limited to that segment. We’re selling into the select service brands, certainly, Wyndham has a terrific mix of hotels many of them in that select service or value segment, and they’ll, again, use our systems in a very robust way. I think the things that are highest on the radar of hoteliers today are, one, how can they use technology engage with their guest in a different way and to change the guest experience. And we spend a lot of time on talk with our customers about how to use both the direct distribution channels, their websites, their voice channels, and their indirect distribution channels to have a big picture of who their customer is, where they’re coming from, what they’re shopping for. So they understand them better, and when they get to the hotel, they’re able to service them better based on just deeper insights into who the customer is and what they were looking for when they are buying. I mentioned in context booking engine, that’s next this released in my remarks, and that’s one where, again, a hotel is able to provide offers to the customer based on where they’re in the website. So if somebody is kind of tipping their hat on what they’re looking for, so if they’re looking at the family fun section of the website, you don’t have to go back to the buying page to get the room they could buy something right off of that page that they’re looking at. And often with a special offer that’s targeted to a family, or if you’re on a spa page, they might have a special spa offer. But, again, stimulating the sale and you see conversion rates really go up when you can provide that in context experience. So I think that place is where we’re winning in innovation that we have delivered that – that our hoteliers aren’t seeing from some of our competitors. And I think finally on the property management system side, where we are in the select service segment, that’s really our target there. It’s the place where there’s most hotels in most of the place, where growth is highest, really changing that property management system, again. So that the desk agent can engage with the guest in a different way and has a full picture of who the guest is when they come into the hotel, no matter, what segment we’re serving. So, look, I think hoteliers really believe that the guest experience is going to change based on technology. And our ability to talk about that with those luxury brands, but also again the biggest hotelier in the world, Wyndham has really all segments of brands to be able to talk to them about how they want to use technology going forward is really that – what’s generating innovation and the investments that we’re making. So allow them to again deliver to their strategy and be able to change the experience for the customer.

[Rick Simonson:]

And this – where we are with this ability to deliver technology to give some of that insight gives them revenue management, gives them additional revenue efficiencies that Tom mentioned, that exists both in the luxury and the select service side. And so we’re really pressing our advantage there, our existing advantage, and the advantage that we think we’ve opened up on the enterprise side. So we’re going to continue to really smartly invest into that and push harder revenue than less when it comes to driving the sustainable biggest revenue pipe for us and the growth there. And that will be through the investment that we’re doing organically to develop those products and those features that Tom mentioned, and build that next level of scale in the platform, and we’re selectively looking at and doing acquisition in the Hospitality space as well, both for product feature or scale acquisitions to the extent they might be available. So, you talked – you asked a little bit to, again, Brian, bout shape of margins and revenue velocity there. We’re focused on having that product in technology solutions set to give us the biggest opportunity for revenue growth across the biggest addressable market. The margins are coming up as I talked about earlier and getting some of the benefit of scale already over the interim or, but we’re not going to in the short-term air on the side of mark, managing the margin up for a couple of quarters at the expense of what we think is a growth opportunity that we can play into better than anyone else.

[Brian Essex:]

Very helpful. Thank you.

[Operator:]

Thank you. Thank you the next question is from Gregg Moskowitz of Cowen & Co. Your line is open.

[Gregg Moskowitz:]

Okay. Thank you, and good morning. You provided organic travel network booking for which was helpful. Just wondering if you could tell us roughly how much of revenue and EBITDA you recorded from Abacus in the quarter as well as what are your expectations for Q4?

[Rick Simonson:]

Actually we do have and I pointed out to you’ll see that in the Q and if you’re giving just a minute here. I don’t have it of the top of my head, but we do have it here is in fact Abacus we had approximately $70 million, $75 million incremental revenue that was the impact there and little over $20 million bookings there. And we had the kind of typical flows through which is stressed on EBITDA there. So again the – if you exclude the impact of consolidating Abacus in the travel network revenue bookings and EBITDA each grew in the range of around 7% plus or minus as I indicated earlier.

[Gregg Moskowitz:]

Okay perfect, thanks for that Rick. And then just a clarification on the cyber breach from last quarter. Are those few millions of dollars of expense are going into corporate overhead or is that cost or some of that cost being allocated to the travel network and solutions?

[Tom Klein:]

Corporate it’s a good question that explains in the question why did that pop up. So thanks for that clarity.

[Gregg Moskowitz:]

Absolutely. Thanks guys.

[Tom Klein:]

I appreciate it Gregg.

[Operator:]

Thank you. The next question is from Jed Kelly of Oppenheimer. Your line is open.

[Jed Kelly:]

Great, thanks for taking my question. As you start to implement and complete more hospitality contracts where’s management on providing more lodging metrics possibly for 2016. And secondly has the completion Expedia, Orbitz’s acquisition have you – has it impacted any share gains particularly on Orbitz?

[Tom Klein:]

Why don’t I start with the second question, it hasn’t to-date as I think many of you know we’re the largest provider of global distribution services to Expedia, we have been for a long time and we expect to continue and have opportunities there. But we did have some legacy business for the Orbitz that we continue to service, but we haven’t seen a step up in that business since the completion of the acquisition. As it relates to the hospitality implementation. I think as the business gets bigger we’ll start to try to provide some metrics, but to give a little more insight it’s not as clean from the standpoint of – as you all know. The Airline industry self-reports many of these metrics that we talk about the things like passengers boarded are easy to see and they’re accurate, because the Airline self-reports and at the end of every month and traffic reports. There’s not any similar metrics in the hotel business. So it’s just a little harder we’re not paid on things like ADR, which you look at if you’re the hotel analyst. We all get paid based on the rates that they spell we get paid based on rooms booked in most cases. So we’ll try to give a little more clarity, but that is just not as easy to compare, because of the lack of industry level reporting.

[Rick Simonson:]

Additionally until we get the critical mass in both of the independent the enterprise we it can be – there can be range so average is sometimes don’t tell you much in that and that we’re working to try to give you what we can as we talk about 2016 and 2017 get little bit more scale there. And then can start to report some things that on average or in lightning rather than possibly misleading.

[Jed Kelly:]

Thank you.

[Operator:]

Thank you. The next question is from Abhey Lamba of Mizuho. Your line is open.

[Abhey Lamba:]

Thanks. So Tom, revisiting some of your comments about hospitality business especially for large enterprise deals. One of the promises of Wyndham deal is that it can open doors for you in other large hotel chains. I understand that we’re not going to see those deals every quarter we have a quarter, but they have long sales cycles, but any early feedback from the field in terms of how that pipeline is developing and is that helping you into getting into some of the other larger enterprise deals?

[Tom Klein:]

Thanks. And I appreciate the question. We’ll, we followed up the Wyndham deal with a win at Four Seasons and there’s certainly prominent and have a very different set of needs so they’ve been a great partner as far as where they think we need to take some of our products just as we started to implement their properties. The broader pipeline for enterprise as you said I’d say it’s early in development, but the success that we’ve had has gotten people’s attention and we’re having fairly robust conversations with a number of enterprise customers, but I think those deals will take a while and as you said it won’t be every quarter. There’s about let’s call it 20 brands out there that we’ve considered the enterprise segment and I’d say we’re talking to all of them.

[Abhey Lamba:]

Got it and as we look at the roll-out schedule of these new airline and hospitality implementations when should we get the full impact of all the commitments that you have? Is it by the end of 2016 or can the revenue growth expectation that we’re going to see next year continuing into 2017 as well?

[Tom Klein:]

Yeah, the pipeline of implementations that we have on the airline side today creates good growth in 2016, but also good growth into the first half of 2017 we’ll see implementation so, really 2016 and 2017 will see nice growth step-ups from the implementation pipeline we’ve built that’s already contracted on the airline solutions side. So, that will roll in over that time period. We think we’ll be done by mid-2017 and again as we start to talk about 2016 we’ll begin to firm up some of those schedules or insight into exactly when carriers are scheduled for implementation or at least the quarter that they’re scheduled in and then as I mentioned on hospitality the Wyndham deal is going well and it starts to implement well on property management now and then on central reservations towards the end of this year.

[Abhey Lamba:]

Got it. Thank you.

[Operator:]

Thank you. And the next question is from Jason Kupferberg of Jefferies, your line is open.

[Ryan Cary:]

Good morning. This is Ryan Cary for Jason. Most of my questions have been asked just one more, looking at the Asia-Pacific region we saw some reports during the quarter that air travel out of China actually decreased for the first time in a number of years in both August and September and that outbound tickets booked to Europe and North America for later in the year were way off as well. Well, I know in general the China market is relatively locked up. It sounds like you may have seen some of the same trends during the quarter, but I was wondering if this is something we could continue to see for a couple of quarters more or if you think it’s like a couple of one or two quarter depth rather than kind of a more lasting trend?

[Tom Klein:]

Yeah, so this is Tom. I’m not going to speculate on how long the trend in China will last but I think what you said is accurate right. The business ex-China and look, China is complicated. There’s a couple of different markets that I’ll talk about here, but the pure business coming out of China is locked up in a stand on monopoly that’s both on the airline reservation side and the travel distribution side. So, we don’t really participate in travel, so sold and ticketed in China. There is an emerging market of Chinese business that sold outside of China in countries that are close to China and we are participating very well in that part of the market and we saw a little bit of softness there but not as much and we suspect that there may be customer profile differences between the buyers who are buying tickets in places like Hong Kong or Taiwan or Singapore or other places around China, maybe a slightly different market than the bigger Chinese local markets. So, we’re still learning our way through it, but we do participate well in Chinese business that’s sold outside of China. As Rick mentioned, we saw some softness in some markets that has some Chinese dependencies, but we didn’t see anything that was alarming or big dips that we thought would that we couldn’t make up in other markets.

[Ryan Cary:]

Great. Thanks for taking my question.

[Operator:]

Thank you. And at this time I like to turn the call back over to Mr. Tom Klein for closing remarks.

[Tom Klein:]

Thank you very much. I wouldn’t typically do this, but I think I do want to congratulate our Sabre team and the American Airlines team on a job well done. It was an extraordinary effort and they should be recognized. So, Ryan I appreciate you bringing it up. Thanks again for joining us on the call this morning. We’re pleased with the results so far this year and expect solid full-year results and increased momentum as we enter into 2016. We appreciate your interest in Sabre as always and we look forward to speaking to you again soon either in person or next quarter on this call. Thank you very much.

[Operator:]

Thank you. Ladies and gentlemen this concludes today’s conference. You may now disconnect. Good day.