Sabre Corp (SABR) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Sabre quarter one 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, the Vice President of Investor Relations, Barry Sievert. Sir, you may now begin the conference.

Thank you, Marcus and good morning, everyone. Thanks for joining us on our first-quarter earnings conference call. This morning, we issued an earnings release, which is available on our website at investors.sabre.com. The press release is also filed as an exhibit to a Form 8-K, which is available on the SEC's website at SEC.gov. A slide presentation, which accompanies today's prepared remarks, is also available during the call at 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 would invite equity and debt investors with additional questions to follow up with Investor Relations.

Please note that when we refer to the plan during the prepared remarks, this refers to the 2014 operating plan that was established in the fall of 2013. Throughout today's call, the earnings, revenues, earnings per share, EBITDA, interest expense and free cash flow information that will be provided are from continuing operations and have been adjusted to exclude expenses and other gains and losses related to reorganization, the amortization of Expedia SMA incentive payments, the working capital impact of the Travelocity business model change, litigation and tax matters and other unusual items. The most directly comparable GAAP measures and reconciliations are available in the earnings release 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 revenue and earnings guidance and goals, our planned dividend policy and 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 the Company's SEC filings, including the final prospectus filed on April 17, 2014 relating to the Company's initial public offering and our Form 10-Q for the quarter ended March 31, 2014, which we plan to file later this afternoon, as well as in today's earnings release, which is filed as an exhibit to a Form 8-K.

Participating with me on the call today re Tom Klein, our Chief Executive Officer; Rick Simonson, our Chief Financial Officer and Chris Nester, Senior Vice President 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 will turn the call over to Tom.

Thank you, Barry and good morning, everyone. Thanks for joining us this morning. Today, we reported solid financial results that were above our plan, positioning us well to meet or exceed our full-year guidance. Before getting into the results, I'd like to take a minute to discuss our recent IPO and Sabre's return to the public markets after seven years as a private company. We spent our time under private ownership transforming our Company, expanding our customer base, investing in our technology and software and completing acquisitions to bolster our technology portfolio. Today, we have an excellent competitive position that will allow us to continue to grow our Company.

We had a goal when we went private to double the size of our Solutions business. We exceeded that goal in Airline Solutions alone while also building our Hospitality Solutions business to over $100 million in annual revenues and the clear leader in hospitality reservation systems. Today, our Solutions business is one of the largest SaaS and hosted software businesses in the world. With broad and deep product capabilities, we have strong momentum and a large market opportunity in our sights. We believe Airline and Hospitality Solutions is on its way to over $1 billion in annual revenue in the next few years.

We also strengthened our Travel Network business through consistent investment in deep, scalable technology and new value-added products like Sabre Red desktop, new capabilities that generate ancillary sales for airlines and hotels and TripCase, our leading mobile app that allows travelers to stay connected with suppliers, social networks and travel agents and will be used by travelers to manage well over 20 million trips this year.

We grew total Sabre adjusted EBITDA every year while we were private, even through the worst financial crisis of our lifetime, demonstrating the strength and resiliency of our Travel Network and Solutions businesses and the value they provide for our customers.

The Travelocity brand remains strong, but we lacked necessary scale. Over the past year, we acted to remedy that through selective disposals and the transformative deal last year with Expedia. The IPO deleveraged the balance sheet, significantly reducing our interest expense run rate and we enter the public markets with momentum and expectations for growth across all of our businesses.

For those of you on the call who are new to the Company or those who knew Sabre when it was previously public, a quick recap of the business is in order. We sit squarely at the intersection of technology and the $6.6 trillion travel industry with the broadest and deepest products in the industry, software solutions that span the breadth of the entire ecosystem. Our software enables our customers to increase revenue, reduce cost and provide better experiences for travelers. Our broad suite of products enables us to see the most holistic view of customers' challenges and opportunities, which best positions us to innovate and win new business. Our software helps our customers solve their most critical operational needs and revenue opportunities, which in turn benefits the industry as a whole.

Let me turn to the first quarter. We continue to execute on our strategy. At a company level, we had solid execution in all three businesses, including accelerating every major milestone in the Travelocity Expedia deal. On a total Sabre basis, adjusted revenues were flat at $757 million, total adjusted EBITDA declined 5% to $184 million.

Given the changes in the Travelocity business model, I think it is most illustrative to focus on the business results excluding Travelocity. On this basis, revenue increased 7% to $661 million, driven by a 9% increase in Airline and Hospitality Solutions revenue and 3.5% growth in Travel Network. Total adjusted EBITDA, excluding Travelocity, increased 4% for the quarter.

Looking more closely at the Solutions segment, we achieved strong growth across our customer base with revenue increasing 9% over first quarter 2013 and strong flowthrough from our SaaS software model produced very strong adjusted EBITDA growth of 31%. In addition to growth among our current customers that drove 9% growth in passengers boarded through our SabreSonic reservation system, we significantly increased the implementation pipeline that will bolster future growth.

We signed two very large new reservations agreements in the quarter. The combined American Airlines and US Airways selected the SabreSonic reservation system as their next-generation solution to replace the reservation product that was being managed by a competitor. This is the largest airline in the world and we are very proud to have been selected.

Additionally, leading European carrier, Air Berlin, selected the SabreSonic reservation system in the first quarter as part of a deal that will leverage our broad suite of integrated products across the airline. Implementation work for both customers is getting underway and we expect to begin realizing transaction revenue in the first half of 2016.

We recently learned that we did not win the Southwest reservations contract. While we are disappointed with this outcome, Southwest remains a reservation customer at least through 2016. We have other systems installed at Southwest that will remain and we continue to work on developing opportunities to work with them more deeply. This decision does not change our view of our mid-term growth goals for the Solutions business.

Within Hospitality, we are focused on growing our international presence, including in Asia where today we have Solutions at nearly 2,000 properties. We built on this momentum in the first quarter with a new agreement at HNA Hotels & Resorts in China. HNA signed a technology agreement that makes Sabre Hospitality Solutions an important part of their technology and connectivity strategy. We have been focused on growing our Hospitality business globally and this deal in China is an exciting win that provides increased momentum in the region.

So on a whole, strong revenue growth and the scale benefits of our SaaS model drove meaningful margin expansion for Airline and Hospitality Solutions. Overall, an excellent quarter for our Solutions business that positions us for continued growth going forward.

Now turning to Travel Network. Direct bookings increased 4.4% in the first quarter driven by new business wins and second-quarter timing of Easter, along with solid growth in all regions despite the dampening effect of Venezuela and Latin America. This solid volume growth and pricing compression from the merger of American Airlines and US Airways results in a 3.5% increase in revenues and 2.2% growth in segment-adjusted EBITDA for the quarter.

We have a defined strategy to expand our share in all regions with a specific focus on EMEA. We had strong conversion sales in 2013 in both the online and traditional travel sectors and that continued into the first quarter of this year. That sales success helped drive 14% growth in EMEA bookings and share growth in the region of 1 point in the first quarter versus the same period a year ago.

We recently took another significant step forward in our strategy with the opening of an office in Istanbul, Turkey, the largest in the EMEA market where we previously did not have a direct presence. Before entering the market, we deepened relationships with important domestic suppliers and signed up travel agencies that will begin to use our product later this year. Turkey is the 11th new market that we have entered in EMEA in the past 18 months. We are confident that we have a product that is significantly differentiated from our competitors and that will continue to win new business with a product-led approach.

Turning to Travelocity, as I said, this is an exciting time for the business as we transition the US and Canadian operations to leverage Expedia's services against our world-class Travelocity brand and the beloved Roaming Gnome. The first quarter was a quarter of transition where, as expected, revenues declined faster than costs. Essentially the transition to Expedia services and the strategic marketing agreement took full effect and is progressing well.

Also as expected, the process of removing many of the costs associated with the old model resulted in higher costs for the first quarter than we will have going forward. Our team did a great job on this transition as is evidenced by the recent customer satisfaction results from J.D. Power that ranked Travelocity number one in the online travel sector.

Additionally, we sold the Travelocity partner network in March adding to the revenue decline. We expect profitability to improve with much stronger results as we move through the balance of this year resulting in solidly positive full-year EBITDA for the business.

Overall, we performed above our internal plan for the first quarter providing us with a solid start to the year. This demonstrates the strength of our business and the value they provide to our customers and it positions us well for the remainder of the year and beyond. And with that, I will turn the call over to Rick to walk through the financials and full-year guidance.

Thanks, Tom. We were ahead of plan in Q1 and expect to perform to plan across the remaining three quarters putting us squarely on track to meet or beat our full-year 2014 guidance. Q1 performance was a result of strong volume growth in our two core businesses. Travel Network bookings grew 4.4% and Airline Solutions passengers boarded were up 9.4%. As Tom said, given the changes in Travelocity's business model, I think it is most insightful to focus on the results of our two growing core businesses, Travel Network and Solutions, which we refer to as Sabre excluding Travelocity. On this basis, revenue was $661 million, an increase of 7% year on year. Q1 adjusted gross profit totaled $287 million, a 5% improvement from the same period in 2013 and total adjusted EBITDA increased 4% to $290 million. This was less than our revenue growth as our EBITDA growth rate was impacted in the quarter by costs associated with the IPO, the pricing compression resulting from the merger of American Airlines and US Airways, as well as the impact of the unfavorable political and economic environment in Venezuela. Sabre consolidated adjusted earnings per share totaled $0.18 for the quarter. This is based on our pre-IPO share count assuming full dilution of 188 million shares.

Moving to the balance sheet and resulting cash flow for the quarter, from Sabre consolidated adjusted EBITDA of $184 million, we generated $68 million of adjusted free cash flow, a 39% increase compared to the year-ago period. Adjusted free cash flow excludes the impact of Travelocity working capital unwind and other costs related to the restructuring, as well as litigation and some other costs.

Total CapEx in Q1 was $59 million, down 21% compared to Q1 2013. We used free cash flow in the quarter of $21 million to reduce net debt. Pre-IPO total net debt as of March 31 was $3.4 billion resulting in a net debt to trailing 12 months adjusted EBITDA ratio of 4.4 times. In February, we successfully repriced our $1.8 billion Term Loan B. The interest rate declined from LIBOR plus 400 basis points with a 125 basis points floor to LIBOR plus 325 basis points with a 100 basis point floor, effectively reducing our annual interest expense on this loan by $18 million per year.

The IPO, which occurred after the end of the quarter, resulted in $616 million of debt reduction, including $320 million applied against our 8.5% 2019 bonds and a $296 million reduction in our Term Loan C borrowings. In total, we have reduced our interest costs by more than $55 million on an annualized basis as a result of the repricing and the paydowns in conjunction with the IPO.

Pro forma for the debt reduction from the proceeds of the IPO, our March 31 net debt was $2.8 billion and our leverage ratio was 3.6 times. This puts us near the top end of our targeted range of 3 to 3.5 times net debt to EBITDA. The reduction in debt and leverage combined with our operating model contributed to the recent one notch upgrade of our corporate credit rating by Standard & Poor's to B+. We are pleased with the outcome of the IPO as it further strengthens our capital structure and continues our strategic and operational flexibility. We expect solid growth in profitability in the coming years. This combined with moderating levels of CapEx gives us confidence that free cash flow will strengthen considerably over the next several years.

Let's turn to our guidance for full year 2014. We were ahead of plan in Q1 and expect to perform to plan across the remaining three quarters. A few words on the dynamics of Q1 and our expectations for Q2 are in order. First, Q1 2014 benefited compared to Q1 of 2013 from the fact that Easter fell in Q2 this year versus Q1 last year. Easter tends to diminish bookings and business travel, so year over year, we get a small boost in Q1 this year and all else equal, we will feel the downward pressure in Q2. Second, collections in Venezuela, which we have moved to a cash revenue recognition basis, came in stronger in Q1 than what might have been reasonably expected given the turmoil.

Looking to next quarter, we expect the overall year-on-year EBITDA growth rate for Sabre excluding Travelocity to increase from Q1 levels and to be consistent with the full-year 2014 guidance growth rate. As the natural cost leverage in the business helps drive margins up even as revenue growth rates moderate somewhat compared with Q1 given the headwinds of Easter timing, uncertain Venezuela collections and the anniversary of some of our Solutions business reservation customer implementations.

By business unit, the business drivers of our full-year guidance billed as follows. In Travel Network for 2014, we expect full-year bookings growth of 2.5% to 3%. Revenue growth will be somewhat offset by Venezuela and slightly lower average pricing due to the merger of American Airlines and US Airways. Incorporating this, revenue growth is expected to be approximately 1.5% to 2%.

Across the Airline and Hospitality Solutions businesses, we expect 2014 revenue growth to be between 7% and 9% driven by solid growth across our customer base. Passengers boarded in Airline Solutions is expected to increase approximately 4% to 5%. We expect the business model changes in Travelocity to result in much stronger second-half performance with full-year adjusted EBITDA of between $15 million and $20 million. In total, Sabre excluding Travelocity revenues are expected to be between $2.575 billion and $2.595 billion, including eliminations of approximately $30 million to $35 million. Full-year adjusted EBITDA is expected to be between $828 million and $838 million. Including Travelocity, we expect total revenue of right around $3 billion with $843 million to $858 million of adjusted EBITDA and earnings per share of between $0.86 to $0.92.

For full year 2014, we are confident of meeting or beating our full-year guidance with a good start in the first half followed by a stronger second half. Historically, the second half is stronger than the first and we expect the same this year.

Looking over the medium term, which I define as the next three years, plus/minus, we expect 4% to 6% revenue growth at Travel Network. This forecast is built on expectations for continued global travel growth at approximately 1.5 times global GDP, a modest amount of share gain and stable to slightly positive pricing.

In our Airline and Hospitality Solutions business, we expect to achieve 12% to 14% top-line growth over the coming years putting us solidly on the path to become a $1 billion SaaS software business. Our confidence in this forecast is underpinned by expectations for continued travel industry growth in both the airline and hospitality sectors, new arrangements that have been signed but not yet implemented and a solid pipeline of potential deals as the outsourcing of customer software solutions continues.

At Travelocity, we expect adjusted EBITDA to improve significantly as we benefit from the full run rate of the implementation of the expense and investment light model. So we enter the public markets as a dividend-paying stock. We have adopted a dividend policy targeting a payout range of 30% to 35% of adjusted net income. In the third quarter, we expect to declare a quarterly dividend of $0.09 per share equating to a yield of over 2%.

In total, our financial summary goes as follows. We beat our Q1 plan with good volume growth in our core businesses, Travel Network and Solutions. The Travelocity business model transition is meeting expectations and driving meaningful improvement. We expect Travelocity to be profitable in the second half and we are on track to meet or beat our plan for the remaining three quarters with a solid first half, a stronger second half giving us confidence to meet or beat the full-year 2014 guidance. Tom, back to you.

Thanks, Rick. We are excited to be back in the public market and to be able to tell our story and demonstrate the strength of our businesses over the coming years. Airline and Hospitality Solutions and Travel Network are strong and growing. We've put Travelocity on a positive trajectory, our customers love the brand and we see significant upside going forward. Our position as a leader in the intersection of technology and travel gives us confidence as we look ahead. I would like to thank all of you for your interest in Sabre. I look forward to getting to know many of you better over the coming quarters and years and with that, I will ask Marcus to open the call for questions.

(Operator Instructions). Kash Rangan, Merrill Lynch.

Can you hear me?

Yes, Kash, how are you doing?

Okay. Good morning and let me just rephrase the question; I am not sure if I got through or not. Congrats on your first quarter as a newly public company again for the second time. Tom, I'm wondering if you could recap for us the opportunity in Travel Solutions and Airline and Hospitality and some rough quantification of the traditional legacy solutions that these verticals use and the dollar-for-dollar replacement potential with your solutions on top of the traditional solutions. And what might help accelerate the growth of the business as strong as it is and as solid as it seems to be heading on the $1 billion run rate? I am wondering if there is anything that could accelerate the revenue growth rate in the Travel Solutions business.

Thanks, Kash. Let me start with a couple of things and start with the market sizes. I talked about the big travel industry. We think there is about a $60 billion spend in technology across the travel sector and 35% to 40% of that is still insourced, the very large trends and the momentum in the trend to continue to outsource that. I think a couple things can happen. One, in the Airline Solutions business over the next several years, we see a pipeline that has about 1 billion passengers boarded available that will come up to bid here in the next three years and we think most, a good chunk of that is insourced business or it sits with competitors who frankly just haven't been waiting in the marketplace. So we think there is a big opportunity in the Airline Solutions business for new reservations customers, as well as the commercial and operations solutions where again the trend is clearly to continue to outsource.

I think as far as further acceleration, in the Hospitality business, as I mentioned, we are very focused on expanding outside the United States. So today, the majority of our revenue, about 65% Hospitality, comes from the United States. We expect over time for that to slip to more like a 40% US, 60% ex-US and I think our ability to accelerate ex-US is where we will get some growth and that is why that HNA deal in China that I mentioned is important. We have about 600 hotels in China today, about 2,000 in Asia. There is a lot of upside for us if we can get outside the US market and grow more aggressively.

Wonderful and if I could slip in a second question. I used your TripCase app and it's fantastic and really plugged into it, but I am wondering maybe if you can -- maybe I am crazy -- help in trying to imagine what the future might look like for the product. But as you try to automate the travel supply chain, are there opportunities to generate advertising revenues from suppliers because the list of suppliers on that TripCase seems to be growing and you seem to be adding more and more points of value and automation through the travel supply chain. Just wondering if you can comment on that.

Sure. I mentioned over 20 million trips will be managed this year with TripCase, which means travelers are carrying their complete itinerary in TripCase as they go across their trip. And certainly one opportunity to monetize is in advertising. We have started to explore that, but we think there is other opportunities. Certainly people want to stay connected to their suppliers, they want to stay connected with their social networks. They want to stay connected with the travel agency that booked their trip and they want to do it as they participate on their trip or take their trip and nobody has a solution like TripCase out there in the marketplace and certainly nobody is doing it at a volume, as I mentioned, more than 20 million trips this year.

So we think there is lots of opportunities going forward, but I think right now we are focused on making it the best product for travelers and continue to grow volume of trips, which we think is the right measure. We don't think downloading the app is what is important. We think actually using it on a trip is what is important and we are confident that over time that core service will be in place where we can monetize.

Thank you very much.

Bryan Keane, Deutsche Bank.

(inaudible) contract loss. Maybe you could talk a little bit about what possibly happened there, what was the reasons for the loss. I guess that is first. Second, does that contract go all the way through 2016 or does it wind down before that? And then the third piece of that is obviously you have some big contracts ramping up with Air Berlin and American Airlines, so are we even going to notice a blip there with that loss? Thanks.

Thanks, Bryan. Let me start with as a reminder, we were not running the SabreSonic reservation system at Southwest. We were running a legacy system that we are maintaining for them. That said, we are not going to comment on the individual customer decision. We continue to have strong momentum in the Airline Solutions business. As you mentioned the recent wins of AA and USAir combination, along with Air Berlin, very big deals and to win them both in one quarter is a significant amount of business coming on.

So while we would have liked to win the Southwest reservation business, we think that, as I said, we will continue to move toward our guidance, which has been 12% to 14% growth in this business. We expect to be able to do that and we certainly see opportunities to increase, as I mentioned, the reservation business through the big pipeline that we see out there.

So as far as the contract goes, the contract does run through 2016 full year and it may go beyond that depending on Southwest's decisions around how they want to manage that migration, but we are contracted through the end of 2016.

Okay. And then just thinking about your comments around guidance, you were talking about either meeting or exceeding. When you say potentially exceeding, Tom, maybe you can just give us an idea of what would need to happen to exceed the guidance, what would be some of the variables?

Hey, Bryan, this is Rick. Good morning. In terms of 2014, as we commented, meet or exceed the guidance and I think the things that we have called out that play a little bit in the dynamics in the move from Q1 to Q2 are the ones that, if they play a little more in our favor, for instance, Venezuela like it did in first quarter, then that would be something that would contribute to it certainly exceeding.

In terms of overall volumes in the travel network business, again macro in terms of pickup in corporate travel in the US, that would help us further exceed our plan, but essentially we banked the exceed that we had in Q1. We expect to meet fully our internal plan on the remaining three quarters. So right there, you should be a little bit ahead of your 2014 guidance, but those two factors are the ones that would have the most impact above and beyond that.

Okay. Last question from me. I just wanted to switch gears and ask about pricing in the marketplace. I think for the longer-term model, you talked about stable to modest increases in pricing. Some of that might be mix as well. Can you just give us an idea how the pricing environment looks? Obviously, with American Airlines renegotiating the deal, there was some pricing pressure, but going forward do you guys think you will be able to get some pricing leverage? Thanks so much and congrats.

Thanks, Bryan. First on AA US, look, we have a significant marketshare in the US. We are by far the largest player here; therefore had the most US Airways bookings, so there was price compression as they rolled into the American Airlines higher volume airline contract. So that was a unique thing. We think that consolidation in the US is largely behind us and we have been able, for the most part, to step through consolidation and continue to see prices in the GDS business in the low single digit up every year. That is what our goal is. We expect as we push towards that 4% to 6% midterm growth rate, our expectation is some of that growth rate comes from price every year and continue to provide more value to airlines. We are providing a broad set of services around how they can get more ancillary revenues. We saw our ancillary revenues from the airlines that we serve go up over 800% in the first quarter, so significant traction there. So we are providing more value. We expect we will get a little price in exchange for that.

And we saw positive price year on year in the first quarter even in spite of the impacts Tom just mentioned, both with the merger and with Venezuela. So Bryan, we remain -- in a quarter, you don't see a lot of change that you should extrapolate, but everything is working and again, we are expecting those low single digits in terms of pricing across the longer arc here.

Okay, super. Thanks so much.

Jason Kupferberg, Jefferies.

Hey, guys, this is Ryan Cary calling in for Jason. Just a quick question on the air bookings share in the GDS. Is this a number you plan on releasing going forward? I am just curious how you did in the quarter. I know over the last couple years, it's kind of been ticking down and I was just wondering if we think this has troughed and what might be some catalysts going forward?

Yes, Ryan, a couple things on share. First, yes, we will talk about our booking share every year or every quarter and actually we are at -- today, we are sitting at 35.4% and the only downtrend we have had has been around the one-time loss of Expedia bookings. That was a risk mitigation decision that Expedia made. They are the biggest air booker in the world, so we still have between 75% and 80% of their business. They are still our largest customer, but we understood that diversification and worked with them on it for a while, but because it was such a big customer, that impacted our share. Net-net, we have been growing share in every region of the world. Our global share sometimes moves around based on mix, so there is regional mix issues. We are obviously heavily weighted to the Americas and we have the leading share in Asia. So there is some noise in the share numbers because of regional mix and how regions are growing, but from a standpoint of customer wins, losses, we have been a net gainer of customers and we have been gaining share in most regions of the world. And as I mentioned, in the first quarter, we saw a year-over-year 1 point increase in Europe, which is where we are really focused and we saw 14% growth in Europe way better than market.

And on the quarter, Ryan, it is 0.1 up in terms of marketshare on the bookings. So we had growth.

Great. And just speaking about that 75% to 80% share of Expedia, is that a number you expect going forward to be pretty steady? And kind of building on that, I think I was reading that Orbitz is planning on moving or using multiple GDS providers when it rolls on in 2015. Is there any way to see what percentage you think you will get of that business?

To the first part of your question, we expect stability in our relationship with Expedia and as it relates to Orbitz, we are working with them. We signed a contract with them to expand our relationship. We do have some Orbitz bookings today, but we have signed a contract to expand the relationship, but we are still working through where we are going to land as far as the share percentage. But it is definitely opportunity for us. We won't see it until 2015.

Great. Thanks so much, guys.

David Togut, Evercore.

Good morning. This is Rayna Kumar for David Togut. Could you quantify your expected interest expense and debt paydown plans for the remainder of 2014 and 2015?

Yes, so in terms of the interest expense, as I mentioned, we will see that decline by about $55 million year on year. And then in terms of the total interest expense -- in terms of what we have got in terms of amortizing, we have got about 1% of the term loans amortized over the next few periods and so that is about $21 million in 2014, 2015. And then as you look out to 2016 and you look at those bonds, we would expect to pay those down with cash on the balance sheet and availability under our revolver or refinance. So really what you see is the constant paydown of about $21 million on the term loans across to 2014, 2015, 2016 and then the 2016 bonds, we'll either pay down from cash available through those two sources or do a refinancing. There is no benefit in paying off those 2016 bonds before then. So in terms of our interest expense, we will be about $255 million less than what we had in 2013, as I mentioned before.

Great, that is very helpful. And just going back to Venezuela, could you please quantify the revenue and EBITDA pressure you expect from the region in 2014?

Well, as we've said, we expect to offset most of that through other means. We had some tens of millions of revenue and we had some tens of millions but less EBITDA, but it is a good profitable market for us. It is a franchise market. We have played Venezuela successfully for a decade or more, Tom, right? I mean you are intimate; you were in the market there and we expect that to continue. Again, it is something that we didn't change in our teams. The plan that they needed to meet, they needed to kind of make that up, but as we have highlighted to everyone, it is a risk that we are overcoming. We did the majority of that in Q1. We still had a little bit of impact and it kind of sets up with the possible risk that I mentioned for the rest of the year.

Okay, great. And just one last question from me. What are your top three R&D priorities this year?

I think a couple areas. Certainly we have to continue in both businesses, both the Solutions business as well as the Travel Network business, continue to deliver services to suppliers, so airlines and hotels primarily that allow them to get at new revenues and to personalize the experiences for their customers. So you saw us on the IPO day, we put out a release on three products across the portfolio that get to personalization of offers to consumers. And we have airlines and hotels now using those capabilities. We are certainly going to continue to invest behind some of the big trends. We think we have the best mobile product in the industry with TripCase and the highest number of trips managed through a mobile product. We will continue to invest there. We are very focused on data and analytics. We sit on a lot of data for our customers and being able to package that data in new ways and provide analytics to customers is a big focus for our Company and that is again across all the businesses. And we think we can both create better business analytics on top of current software solutions and be able to price into that as well as create completely new solutions as we have with intelligence exchange in the Airline solutions business which we think will be a meaningful line of business over time. So those are the big areas we are focused on.

Thank you.

Brian Essex, Morgan Stanley.

Hi, good morning, gentlemen. Congratulations again on the quarter. I just want to dig in a little bit again on Southwest if I could. Maybe if you could comment on, as people look at maybe the volume of PBs on their website and maybe they are drawing the wrong conclusions or the right conclusions, I don't know kind of how to approach it, but maybe if you could speak to the quantity of PBs on their website, what the impact may be, what kind of considerations. For example, direct bookings versus reward customers and what kind of puts and takes to consider with that.

And then, additionally, if we could talk about long term the confidence in being able to deliver on the long-term growth in that segment. I mean you have a pretty substantial pipeline. You have already announced a couple hundred million PB wins. How do we look at the size of that pipeline, your win rate in that pipeline and the confidence that you have for the longer-term performance in that segment?

Hey, Brian, this is Rick. Let me start with -- as we said in the press release of that day, Southwest in that contract did account for less than approximately 1% of our Sabre revenues and less than 3% of EBITDA. We are contracted through the end of 2016, as Tom reiterated earlier. And in terms of their passengers boarded, which is publicly reported out there, I think it is somewhere over 110 million passengers boarded and again, they are using a legacy system currently that we run for them. It is not our current modern system and of course, that is I guess part of why they are having to change that and they are having to rationalize multiple systems there. So they have those switching costs that they have to incur because they have been somewhat using older legacy systems. And then, Tom --.

On the broader opportunity, I think we have shown the ability to continue to win airlines all over the world. Last year, we had LAN -- well, [Letom] in Chile. We had Etihad in Abu Dhabi and we had Virgin Australia in Brisbane, Australia come over to Sabre. These announcements we just made are two of the bigger players out there that will be up for bid over the next couple of years that we won. So we feel like we can walk into every deal and be in a position to win. And we have a broader set of services that we can provide beyond reservations that creates opportunities for us at every airline. So even when we don't win the reservations business, we have opportunities to put a broad set of solutions into an airline as we have done at a number of Amadeus' customers and Navitaire customers.

So every airline is a potential customer for us. We have Solutions at almost 300 airlines and we will win our fair share of the reservations business. A lot of it, as I said, is in-house. That outsource trend will continue. We don't believe that there is many airlines in the world that have the capability to spend and also have the technology, expertise and talent to be able to maintain their own systems long term. So we think we will continue to see the outsourcing of those in-house capabilities and we will win our fair share of the market.

I think it speaks to the breadth of your platform that you remain -- that Southwest remains a customer of yours. Maybe can you talk about those solutions? And then the second part of my questioning is geographical expansion. As you expand into Turkey, is there anything you can relay from your experience there that we can kind of extrapolate to other geographic expansion, particularly considering that globally I think the US is one of the lower priced markets out there if you are looking geographically? How do you approach that and what kind of pricing uplift can we be looking at for that?

So let me start with the back end of your question first as far as geographic expansion. We have a product that we think at this point is highly differentiated and it is highly differentiated globally. We have talked about some of the reasons, TripCase is one of the reasons, but another one would be we hands down have the best product for travel agents that work for corporations booking corporate travel. We find the lowest fare more frequently than any of our competitors and we have lots of third-party studies that suggest that. So there's a lot of differentiation in our product today that we believe will resonate no matter what market we are selling into and that is why we have confidence that we cannot just expand in EMEA where we are today, but also go into some of these new markets where we traditionally hadn't played.

Besides the 11 markets that we entered in the last 18 months, there is not a lot of places where we don't have a presence today. Our focus will be on expanding -- again, we are going to stay focused on EMEA. It is a place where we have proven that we can grow evidenced by the 1%, the 1 marketshare point that we gained in the first quarter. We have grown significantly in the Middle East portion of EMEA over the last several years, which has had characteristics that are consistent with any emerging market. Some of the best growth rates in the world have come out of the Middle East and you are right, the pricing environment in those EMEA markets is very, very favorable. So we will continue to look to expand there and see the kind of growth that we saw here in the first quarter. But we will use a product-led approach around the world.

As far as the Solutions business, at an airline -- we have Amadeus customers like [Sadia] that have 12 solutions wrapped around the reservation system. So we have lots of opportunities to sell into airlines. The operations suite is a very powerful suite; it helps airlines save costs. We have best-of-breed capabilities there and we will continue to expand our Solutions business with big reservations deals, as well as selling modules of software.

I guess just on the geographical, any sense of the pricing uplift? Is Turkey representative of what you can do geographically from a pricing perspective or I mean how do we think about the differential there? I mean there is clearly an opportunity in other markets. I am just kind of wondering how we think about (multiple speakers).

We have talked about low single digit pricing increases. That includes some mix. We have a very big base in the Americas and so we think that low single digits, and if we expand faster globally than our current plan, we will be able to move that up a little bit, but we fully expect that kind of moderate pricing increases every year in the GDS business.

Great, thank you. Congrats again.

Arun Seshadri, Credit Suisse.

Hi, guys, can you hear me?

Yes.

Okay, great. Thanks for taking the questions. I just wanted to ask, in terms of Travel Network, just wanted to understand the operating leverage model there. Revenue grew nicely. You talked about the delta between bookings and revenue, but if you could comment a little bit on operating leverage and what we should see there going forward.

Yes, hey, Arun, this is Rick. In terms of first quarter, we had revenue growth of 7%, we had EBITDA growth of 4% and that is not indicative of the operating leverage overall or what you have seen in (technical difficulty) history or what we expect going forward. And really that was an issue of we had some expenses related overall in the IPO and we had some things related to a settlement here. So Sabre overall in terms of that operating leverage -- in the first quarter, we were impacted by those things.

In terms of Travel Network, coming to it and looking forward as we talked in the IPO, we have increased our margins there, the adjusted EBITDA margins, by over 500 basis points since like 2009 and we are in the 42%-ish range. We expect to continue those and hold those steady at that good level and then have the growth that we talked about over the medium term to drive overall EBITDA.

Okay, I appreciate those comments. And then I just want to also ask about the margin accretion potential on the Airline Hospitality business. What kind of incremental margin can we expect for additional revenue there? And I noticed that your margins relative to Amadeus are lower, but I imagine it is a result of scale. If you could sort of qualitatively talk about the type of margin accretion possible there. Thanks.

Yes, and as we spoke in the roadshow, we are sitting right around 30% EBITDA margin (technical difficulty). We have got cell phone noise in the back. Thank you, that is better. So Arun, in Solutions, we have been running last year at about 30% adjusted EBITDA margin and as we talked, we expect to see expansion of that. As we get scale, we get benefit across the SG&A and we have gotten maturity in terms of our ability to efficiently implement new airline reservations platforms and of course, we are starting to get scale across our operational and commercial suite as well. And then in Hospitality as well, we have taken that from a very small business to one that is over $100 million in revenue, one of the biggest in the business. And it starts to reach the earlier stages of scale while Airline Solutions we believe are at scale and now we start to get the benefit.

So as I talked, as we look across the medium term in this kind of three-year arc, we expect to move into the mid-30%s and above as we go forward and that is the benefit of efficiency and leverage in the model and you get the top-line growth as well. So it is the double positive in terms of how that starts to drive a big increase in total aggregate EBITDA and with a moderation of a less intensity per dollar of revenue on the CapEx that of course then is a contributor to and the confidence I talked about of increasing free cash flow.

Is there one more question, operator?

John King, Bank of America.

Oh, great, thanks. Hi, guys, thanks for taking the questions. Just a couple of follow-ups if that is all right. Firstly, on the Southwest side of things, you mentioned it was on a legacy platform. Can you quantify how much of your solutions revenue is on a similar legacy platform and not on SabreSonic?

Yes, John, thanks. There is no other revenue on that platform. It was a unique situation at Southwest. We had a very long-term relationship with them where we managed this internal system for them, did all the custom development for it, etc. So it was a one-off. All of our other -- more than 80 airlines use our SabreSonic CSS platform and in all those cases, they use the reservation system, the inventory system and the departure control system at the airports. So all three big components are installed at all of our airline customers.

Good to know. Thanks. And just one other comment around the commission or incentive levels that you are seeing at the travel agencies. You gave some good comments around the pricing, but what would you expect in terms of the commission levels going forward in the medium term? I noticed that the gross margin was slightly down and I wonder whether that was -- part of it was slightly higher commissions?

Well, no, it wasn't. But I will let Rick talk about it a little further, but let me just start with we have seen good moderation of the incentive line over time and again, it is based on us going to market with a product-led strategy. So when we go into travel agencies, whether they are online travel agencies or whether they are business travel or leisure travel, we are trying to map for them how our product will help make their operation better, either help them drive revenues or help them reduce costs in their operation or help them appear to be more innovative to their customers and deliver more innovative services to their customers. That is where our conversation starts and generally our market research says that is why people pick us when they do pick us versus our competitors and because of that, our economic offers have moderated over time.

Hey, John, we didn't see anything different in Q1. We had a slight increase there and that is what we have seen, that is what we expect is a slight increase and that is what we have managed as well in the past and expect going forward. So there is nothing new and nothing to comment on in the dynamics around incentives in Q1.

And the increase is primarily driven by the growth rates of larger agencies versus small agencies.

Got it. And just last one, if you could comment, Rick, maybe on the cash outflows you are expecting on the Travelocity working capital side for the rest of the year just to try and understand how that is phased through the year. That would be great. Thank you.

Yes, as you know, we have talked that we expected the majority of that to be done in the first half and we had some in 2013, there was somewhat less than $50 million on that unwind in 2013 and we have got somewhere in the range of $125 million to $150 million to go in the totality of the first half in terms of the working capital unwind associated with both the Travelocity migration to the Expedia platform and a little bit around the [TPN], both TPN, divestiture of that and the Travelocity. So that gives you the quantum.

Very helpful. Thank you.

Good, thanks, John.

Thanks John.

We have no further questions in the queue at this time. I would now like to turn the conference over to Mr. Klein for closing remarks.

Thanks, everybody, again for joining us on the call this morning and for joining us on this next leg of the exciting journey that we are on. We appreciate your interest in Sabre and we look forward to speaking with you again very soon. Have a good afternoon.

Ladies and gentlemen, thank you for attending today's conference. This does conclude today's program. You may all disconnect. Everyone have a fantastic day.