Sabre Corp (SABR) 2015 Q1 法說會逐字稿

Good morning, and welcome to the Sabre first quarter 2015 earnings conference call. Please note that today's call is being recorded and is also being broadcast live over the internet on the Sabre 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 will now turn the call over to the Vice President of Investor Relations, Mr. Barry Sievert. Go ahead, sir.

Thank you, Nicholas, and good morning, everyone. Thanks for joining us for our first quarter earnings conference call. This morning, we issued an earnings press release which is available at our website at www.Investors.Sabre.com. A slide presentation which accompanies today's prepared remarks is also available during the call on the Sabre website. A replay of today's call along with the slide presentation will be available on our website beginning this afternoon. Following today's call, we invite investors with additional questions to follow up with Investor Relations.

Throughout today's call, we will be presenting certain non-GAAP financial measures which have been adjusted to exclude expenses or other gains or losses related to restructuring, litigation, and tax matters, and certain other items. The most directly comparable GAAP measures and reconciliations are available in our earnings release and other documents posted on our website at Investors.Sabre.com.

We would like to advise you that our comments contain forward-looking statements. These statements include among others disclosures of our guidance including revenue, adjusted EBITDA, cash flow, CapEx, and earnings guidance, our expected segment results, the implementation and effect of new agreements, our expectations of industry trends, and various other forward-looking statements regarding our business.

These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. Information concerning the risks and uncertainties that could affect our financial results is contained in our SEC filings including our Form 10-K for the year ended December 31, 2014.

Participating with me on today's call are Tom Klein, our President and Chief Executive Officer, Rick Simonson, our Chief Financial Officer, and Chris Nester, our Treasurer and SVP of Finance. Tom will start us off with a review of our first quarter performance. Rick will then offer some additional perspective on our financial results and forward outlook before turning the call back to Tom for closing remarks. We will then open the call for your questions. With that, I'll turn the call over to Tom.

Thanks, Barry. Good morning, and thank you for joining us today for our fifth quarterly call as a public Company. The first quarter marked a strong start to the year with solid financial results and continued commercial success across all of our businesses, putting us on pace to meet our full year objectives.

Our total Company revenue was $710 million, a 7% increase, while adjusted EBITDA increased 15% to $244 million. Adjusted earnings per share for the quarter were $0.27. In our airline and hospitality solutions business, excellent execution and solid customer growth drove a 16% increase in revenue, and scale benefits from our technology platforms deliver 34% adjusted EBITDA growth. In Travel Network, improving global bookings growth contributed to revenue increase a bit above 3% and 8% growth in adjusted EBITDA.

We've also made significant progress on a number of fronts. We brought new innovations to market including our airline solutions customer experience manager, that forward-thinking airlines like Virgin America will leverage to deliver personalized customer offers across multiple channels and dynamic ancillary pricing to drive revenue uplift. We converted sales pipeline opportunities into wins in our solutions business. That's maybe the best demonstration of our momentum.

In hospitality solutions, we signed a landmark agreement with Wyndham, and in airline solutions today we announced our new agreement with LATAM airlines use the SabreSonic CSS platform, along with many other solutions. Additionally, we executed on other priorities including the completion of our divestiture of the online travel agency business and the refinancing of our 2019 bonds, resulting in meaningful interest savings.

We feel very good about our progress on multiple fronts. Our continued momentum makes us highly confident that we will meet our 2015 objectives.

Now let's look more closely at the airline and hospitality solutions business. A hundred and twenty-six million passengers were boarded using our SabreSonic CSS reservation system. That was an increase of 7.2%. That's stronger than our expected growth in our customer base and above the long-term industry trends. Our work on new SabreSonic CSS customer implementations in our pipeline remains on track. At American Airlines, the SabreSonic CSS implementation continues to pace for the fourth quarter, and we also continue to build our implementation pipeline for other solutions across our portfolio.

In airline solutions, we had two big wins for our data and analytics platform, Intelligence Exchange, with two new customers, Southwest Airlines and Aeroflot, the largest carrier in Eastern Europe, joining British Airways and Cathay Pacific. This highly configurable data intelligence platform is the only solution of its kind in the industry. Intelligence Exchange leverages real-time data and intelligently actions that data to drive operational efficiencies, customer service and loyalty, and revenue opportunities. This is one of several new product offerings we discussed in our recent Investor Day, and we have a strong pipeline of airlines interested in Intelligence Exchange and other new capabilities.

As we do great work for our customers, we can sell into our broader portfolio. This quarter at Aerolineas Argentina we successfully renewed an already broad agreement, but we had a chance to go even deeper. We added new solutions for them including enhanced mobile and shopping capabilities. All of this reinforces that our industry-leading, customer-centric retailing platform is resonating in the market, with increasing interest from airline customers seeking a 360-degree view of their customers. They want to leverage our retailing platform to deliver personalized offers and a personalized experience throughout the entire traveler's journey.

We believe these capabilities are the foundation for the next phase of ancillary revenue, real retailing, and customer service improvements, and no one else is doing more in this emerging discipline. At our recent Investor Day, Virgin America CEO, David Cush said, "Dynamic Retailer, and some of the other Sabre systems that we've got coming online in the next few weeks, are going to be one of the things that propels our revenue numbers going forward."

Today, we had big news in Latin America. We announced that LATAM Airlines, a global top 10 airline with nearly 70 million annual passengers, will use the SabreSonic CSS reservation system. This decision came after competitive evaluation seeking the best technology platform to propel LATAM into the next phase of their growth. Under this agreement Brazil-based TAM Airlines with nearly 40 million annual passengers boarded will migrate to the SabreSonic CSS system.

In hospitality solutions, we announced a landmark agreement with the Wyndham Hotel Group, the world's largest and most diverse hotel operator. Wyndham will use the SynXis Enterprise Platform as their global distribution and Central Reservations Solution. In its announcement, Wyndham cited the SynXis platform as the best technology and revenue generation solution to help grow their 7,500 global hotel properties, including innovative pricing, inventory, currency, and language capabilities.

This deal is the first of its kind in the world among the top 20 global hoteliers, and it builds on the property management agreement we announced in the fourth quarter with Wyndham's 4,500 North American properties. We're demonstrating clear leadership and hospitality, and we feel like we have a multi-year head start in the large hotel central reservation system space.

Now let's take a look at how our innovation and commercial successes are translating into revenue and earnings growth. We had strong customer growth from across airline and hospitality solutions, producing revenue growth of 16% for the quarter. Excellent operating leverage from the scale of our technology platforms drove a 34% increase in adjusted EBITDA to $71 million, resulting in adjusted EBITDA margin of 34.9% for the quarter up more than 4 points year-over-year.

Strong first quarter financial results and market momentum, innovative solutions, robust sales, and implementation pipelines, together these make is very bullish about our competitive position and the trajectory of the airline and hospitality solutions business. Our implementation pipeline now includes American, Air Berlin, Alitalia, Air Serbia, Air Seychelles, Copa, and LATAM, representing more than 290 million passengers boarded annually onto our existing base of over 500 million annual passengers.

Many have asked about the timing of our airline solutions reservation system implementation pipeline. While the timing often moves based on the needs of our customers, if you are looking at the slides that are on the presentation, we built this illustration to show the clear, strong visibility we have into our implementation pipeline, and the resulting revenue growth that follows. As of today, we expect the current pipeline will be implemented largely between the end of this year and the first half of 2017. The most recent wins at LATAM and others support a clear path to our stated expectations for 12% to 14% average top line growth for airline and hospitality solutions over the medium term.

At Sabre Travel Network, direct bookings growth increased 2.7% in the quarter. We saw strong bookings growth of 10% in EMEA, compared to less than a point of growth in the market overall. Our share is up more than a full point. We saw modest growth in the Americas, excluding Venezuela. Importantly, total bookings growth strengthened sequentially as the quarter progressed.

Travel Network revenue increased 3.3%, and adjusted EBITDA increased 8% in the quarter. Strong flow-through to adjusted EBITDA was augmented by the elimination of a tax contingency accrual which resulted in a $3 million benefit to the quarter. We had strong performance in all three businesses, giving us every expectation that we'll meet our full year objectives while positioning us for further acceleration in 2016 and 2017.

Before turning the call over to Rick to walk through the financials and the forward look, there's one housekeeping matter that I wanted to address. Several members of the executive team, myself included, have entered into 10b5-1 plans to begin selling a portion of our Sabre equity. As you know, we're privately held for over seven years, and during that time no equity was sold by management.

As a result, several of us had options that will be expiring in the near-term and normal needs for diversification after such a long period. We'll continue to hold significant stakes in Sabre stock, keeping our interest aligned with yours. With that, I'll turn the call over to Rick to walk through the financials and full year guidance.

Thanks, Tom. Growth across each of our businesses and solid P&L leverage resulted in strong quarter one adjusted EBITDA and adjusted net income growth. A quick recap of the consolidated quarterly results, revenue was $710 million, an increase of 7% year-on-year.

Q1 adjusted gross profit totaled $321 million, a 12% improvement from the same period in 2014. Total adjusted EBITDA increased 15% to $244 million. Adjusted net income growth of 43% to $75 million, resulting in Sabre consolidated adjusted earnings per share of $0.27 for the quarter, a strong rhythm to those numbers.

Moving to the balance sheet and cash flow, we generated $70 million of free cash flow from Sabre consolidated adjusted EBITDA of $244 million, an increase of 56%. On an adjusted basis, we generated $84 million of adjusted free cash flow, an increase of 38% over the prior year. Total adjusted CapEx for Q1 was $76 million, including capitalized implementation costs of $14 million. Upfront software fees collected from customers totaled $24 million.

We continue to expect capitalized implementation costs and upfront fees collected to offset one another on a full year basis. Total net debt was $2.63 billion as of March 31, reflecting significant net debt reduction driven by strong free cash flow growth and the proceeds from the Travelocity sale. Our net debt to trailing 12 months adjusted EBITDA ratio was 3 times, at the low end of our target range of 3 to 3.5 times.

As Tom mentioned, early in the second quarter we successfully redeemed $480 million of 8.5% 2019 maturity bonds. These bonds were redeemed through the issuance of $530 million, 5 3/8% senior secured notes due in 2023. The amount issued covered the 2019 principal accrued interest and related fees, premiums, and expenses. The lower rate results in a $12 million reduction in annual interest expense going forward. There was great demand for Sabre credit, allowing us to achieve a significantly lower rate and extend the maturity.

With one quarter in the books, we are well within our full year guidance ranges. Looking across the balance of the year, our underlying business metrics are healthy and aligned with our expectations. Combined with our Q1 momentum, we are highly confident that we will meet our 2015 objectives.

As a reminder, our previous guidance was as follows, for the full year we continue to expect revenue between $2.77 billion and $2.8 billion. In airline and hospitality solutions, we expect revenue growth of between 9% and 11%, driven in part by passengers boarded growth of approximately 10%.

At Travel Network, for the full year we continue to expect revenue growth of 4% or more, driven by bookings growth of around 3%. We expect adjusted EBITDA of between $895 million and $910 million, and adjusted net income of between $275 million and $290 million. We expect adjusted EPS in a range of $1 to $1.06.

Full year adjusted free cash is forecasted to be more than $300 million, and free cash flow expected to be over $250 million with the primary difference being essentially the last of the AA credits. Full year GAAP CapEx is expected to be approximately $250 million, and capitalized implementation costs of $75 million.

Now I'd like to provide you with a bit more color on the shape and how we expect first half, second half, and the remaining three quarters to develop. For Sabre overall, we expect first half 2015 revenue and adjusted EBITDA growth rates to be consistent with our full year guidance of 5.3% to 6.4% for revenue and 6.5% to 8.3% for EBITDA. Quarterly, we expect stronger overall growth in Q1 and Q3 than in Q2 and Q4, respectively.

For airline and hospitality solutions, as we previously discussed we expect passengers boarding growth to moderate over the next 2 quarters due to the loss of a small customer. Despite this, revenues from the broader portfolio are expected to drive continued strong growth in revenues and earnings in Q2, with tougher comps in the back half of the year.

In Q4 specifically, we expect much stronger passenger boarded growth with the anticipated cut-over of American Airlines, but we expect revenue and adjusted EBITDA growth to moderate. This is primarily a function of the anniversary of a strong 2014 fourth quarter. Also as a reminder, we currently provide services to American Airlines for their legacy reservation system that will end when the implementation of SabreSonic CSS is complete.

Passengers boarded driven revenue under the new SabreSonic CSS agreement will be significantly more than the legacy services revenue we've been realizing, but not entirely incremental given this previous revenue stream. To be clear we expect a re-acceleration of revenue and EBITDA in 2016 and 2017, consistent with our committed pipeline as detailed by Tom, and consistent with our medium-term targets.

Now turning to Travel Network, we saw our bookings improve in March as compared to the first two months of the quarter. We expect sequential improvement in bookings in Q2 versus Q1 based on continuing monthly improvement so far through April. However, Q2 provides the most challenging year-on-year quarterly comparison of the year for Travel Network in terms of revenue and EBITDA.

While we expect bookings growth to improve sequentially, we don't expect to see the full benefit of bookings growth to flow through to revenue and EBITDA. We expect more modest revenue growth in Q2, pretty much in line with Q1's, and for your on your EBITDA to decline low-single digits. This is primarily due to the tough comp with 2014 Q2, due to the $7 million contract termination payment from Travelocity to Travel Network in the year-ago quarter and lower expected collections from Venezuela in this current quarter based on year-to-date trends. We expect stronger Travel Network revenue and adjusted EBITDA growth in the back half of the year.

In summary, the solid first quarter came in largely as expected, and our views on the balance of the year remained unchanged with expectations for strong full year results from each of our businesses, with a bit of variability from quarter to quarter, as I just pointed out. Tom, back to you for closing remarks before we open up for questions.

Thank you, Rick. We continue to move the business forward across multiple fronts. First quarter results were strong, and trends are very favorable. We continue to bring new innovation to market and drive progress against our sales and implementation pipeline, and we completed the divestiture of the online travel agencies increasing our focus in providing proceeds to further deleverage the balance sheet.

We became the first technology provider to successfully enter the enterprise hospitality space for both central reservations and property management with our landmark agreement with Wyndham. We recently completed the refinance of some of our most expensive debt, lowering our interest burden going forward, and just today we announced a new expanded agreement with LATAM Airlines Group, further expanding our pipeline of SabreSonic CSS implementations.

All our teams from across the business are driving value with a focus on innovation and on execution. We've positioned Sabre very well for the longer-term growth, but we've also solidified our confidence regarding the remainder of 2015 and our ability to accelerate performance in 2016. With that, we would like to thank you again for participating today, and I'll ask Nicholas the operator to open the call for questions. Nicholas?

(Operator Instructions)

Ashish Sabadra, Deutsche Bank.

Good morning. Solid results. Quick question on the LATAM win, was at a win from a competitor, or is it in-house, and moving to [outsource] solution? I was wondering if you could give more color on the LATAM win.

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

That's great. One more quick follow-up on the Travel Network, we saw share improvement there. You talked about 10% [booking through] in Europe. I was just wondering if you could provide some more color about [your strategy to further] gain share in Europe?

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

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

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

Right. In quarter 2, the slight decline in EBITDA is only TN, to be clear, not Sabre. The one-time is the tax benefit that we got that Tom mentioned. That was the release of accrual that benefited TN in the quarter. In terms of the margin profile in Travel Network, consistent with our medium-term expectations that we've shared previously, we would see revenue growth of 4% to 6%. We would see EBITDA margins consistent with where we've been running which is about 42.5% plus or minus on a quarterly basis, due to some of the variability we've talked about. Absolutely no change there. Rock solid.

Great. Thanks for taking my question.

David Togut, Evercore ISI.

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

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

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

Yes, we typically are using other folks' data, so I think I would point you to airline analysts across the community as opposed to for us to guess. We look at everybody's capacity forecasts, and we use an average to build our models.

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

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

Got it. Thank you.

Thank you. Just to be clear, on the property management side, we are already deploying. That deal was announced in the fourth quarter. We have properties up and running on the system, and we'll continue that rollout on the central reservation deal that we just announced this quarter. That's primarily impact in 2016 and into 2017.

Understood. Thanks

Thank you.

Jim Schneider, Goldman Sachs.

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

Hi, Jim. It's Tom. I'll let Rick talk to a bit more detail. I think you heard as we talked through how we did this quarter that we feel really confident about the full year. We saw sequential growth each month on the TN business from a bookings perspective. We have good momentum across hospitality and airline solutions, so I think we feel really good about the year, but it's also early in the year.

We've seen a little bit of a continued (inaudible) in Venezuela, from both a collections standpoint and from a traffic perspective. It's not gotten any better. We think we've buffered against that pretty well, but it's a bit of a drag on full year. With that, I'll turn it over to Rick for a little bit more color.

Again, I feel good about the sequential bookings growth that we've seen in the Travel Network business. We laid out the very good visibility that we have in our solutions business. That's one of the attributes of this business. I feel very good about that aspect, and really it's Venezuela. As I mentioned in Q2, we just aren't collecting cash out of Venezuela this year at the rate that we did last year, so that's the one nick on it.

As Tom and I both reiterated in our prepared remarks, we're well within our guidance ranges for the year. We feel very good about it. We've got good momentum in Q1, and operationally the rhythm of the business is looking good with the point out of Venezuela, would be one risk, to answer your question specifically.

Thanks.

We can manage that.

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

Yes, Jim, I think we would stick with what we have said before on margins. We came into the year with a trajectory that has started when we first went public, where we were talking about low-30%. We finished the year in 2014 in the mid-30%, and we've said we will push them up into the high-30%, and that 40% wasn't a cap, but rather our near-term visibility. As I talked about with things like Intelligence Exchange and some of the other solutions that we've deployed, we see big opportunities for reinvestment and in organic growth by adding systems that this bigger community of customers can buy and also that customers that don't use our reservation system can buy.

As I talked about the Intelligence Exchange customers, that list that I mentioned, British Airways, Cathay Pacific, Southwest, and Aeroflot, only Aeroflot long-term will be on the SabreSonic CSS system. It's a big solution we can sell into any carrier. We like those type of opportunities for reinvestment, but again we think we can maintain those margins in the midterm up in the high-30%. I would expect as we get more scale, we'll be able to revisit that number.

High-30% aren't a cap, by any means. Remember, we're only starting to get what I would consider scale in hospitality solutions. We've achieved a certain level of scale in airline solutions. We can get more as Tom pointed out, but we're in early days of seeing the benefit of scale in hospitality. That forms where we are in our medium-term guidance of moving from the mid-30% to the high-30%, but you can see then how we might be able to take further advantage of that second pillar of the scale across solutions as we look further out.

I think I ignored our hospitality business which is growing faster than the airline solutions business. That's a big TAM that we're selling into. We have a narrower set of solutions than we do certainly on the airline side. We'd like to broaden those solutions, so where we see opportunities to invest there, we will.

That's helpful. Thank you very much.

Thanks, Jim.

Gregg Moskowitz, Cowen and Company.

Hi. Thank you very much. Good morning, gentlemen. First question is, it sounds as though bookings growth increased sequentially as you progress through the quarter, and that's continued into April. Can you just talk about how this activity compares to your typical Q1 or early Q2 linearity? Also, I'm just wondering if there were any regions in particular that you would highlight there?

I think it was as we expected from the standpoint of year over year. We had some tough comparisons in the first quarter. We were anniversaring some big issues. We were anniversaring three things we talked about most of last year, consolidation of American Airlines and US Airways, smaller airline contract into a bigger one. That put some pressure on price in that contract. We had the beginning of the downturn in Venezuela last year which is more or less anniversaried, but as Rick said, we're not collecting as much cash.

We expected that the first quarter would be a bit of a recovery quarter, but we had it in these low-single digit growth rates, and expected that the quarters would ramp up over the course of the year. Again, we've seen it. We've seen that happen, as Rick said into April, but we're still only four months in, so we don't want to get too far over our skis on how we think about the rest of the year. The trend is going in the right direction.

We point to Europe, where we grew almost 10 times faster than the market. We grow very profitably there, and a lot of our focus is there. I've said before, we feel like we can take share anywhere in the world, and we're knocking on doors everywhere in the world.

Okay, that's helpful. Thanks, Tom. Also, I just wanted to go back to American Airlines. I realize obviously, it's impossible to nail down implementation timing at the standpoint, but just for modeling purposes, Rick, I'm wondering if you could put a finer point on, at this stage when in Q4 you might expect that AA cut-over to occur? When you say the American Airlines SabreSonic revenue is incremental to the legacy part of that business which is going away, is it materially higher or just modestly so? It would be helpful to get more color there if possible.

Yes, Gregg. It's a multiple time more than the legacy revenue, so very material in that regard. Again, you don't get the full benefit if you were just looking and saying, bringing on the X millions of incremental passengers boarded with American. You have to offset that by a little bit by that legacy revenue that we're getting. In terms of the timing, we're looking at it still on time before the end of the year, but can't be more precise than that as we work with our customer on that.

Great. Thank you.

Brian Essex, Morgan Stanley.

Hi. Good morning, and thank you for taking the question. I was wondering if you could dig into a little bit on the solutions side of the business, and in particular on the hospitality side. I'm just trying to get in, like you said, growing faster than the rest of the business, and I'm trying to get an understanding of where you see the most opportunity in the pipeline. Is it large enterprise or large hotel chains with a nice referenceable deal with Wyndham now, or is it the sweet spot in the lower hotel chains? Then I have a follow-up.

Sure, Brian. Good morning. It's Tom. A couple things, we feel like we can sell into all segments of the market. We've talked about that before. On the independent side, so call it the long tail of the market, we have things like InstaSite, which we released last quarter which gives an independent hotel the ability to get a website up and running in a week, with all their fares loaded, all their unique property attributes. We think that hotel in a box type technology for the long-tail is an effective way for us to sell.

We've added resellers across Europe. We're adding salespeople in many of the emerging markets across the globe. We feel very good about selling into that long-tail independent segment. We just finished a conference, a hotel customer conference in Asia, where we had a lot of local Asian chains. That's the next segment up, and that's been our sweet spot. We have by far the best solution for that midsize chain.

We talked about that long customer list of companies like Mandarin, Shangri-La, Four Seasons, really good luxury operators, but also anybody that's in that 30 or 40 property space with a brand. We have great functionality for those chains. We'll continue selling to that. Regionally, the growth should come ex-US in the market.

Finally, the enterprise segment where we've broken into with the Wyndham deal, and we're talking to a lot of the hoteliers in that top 20 space. It's largely in-source technology. I think the sales cycles there will be long, similar to what we've seen on the reservation side. I think there will be a little bit of wait and see on how we do, but we feel very confident about our deal with Wyndham and what it'll produce for them.

I think it's a great proof point for some of those other large hotels who just can't do what they want to do with their technology to service their guests. The industry does have a problem. I think they will outsource technology over time, and I think we're best positioned to get the benefit of that.

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

Okay. As a follow-up, any opportunity to cross over into the Travel Network side of the business and getting more of that inventory onto a GDS platform? Particularly, you posted some pretty nice growth in non-air bookings this morning. I'm just wondering how you look at the non-air segment on the Travel Network, and where potential opportunities might come from?

Yes, that's is great question, Brian. I don't have an answer from a data perspective, but I will tell you practically what happens. As independent hotels move on to a central reservation system platform, and many times they're moving from low tech to high tech in one step when they make that move, they connect to all channels at that point. Many of the independents that move on, whether it's our CRS or someone else's, they're getting connectivity to GS channel that they didn't have before.

As companies like Bookings.com and Expedia, who have very big sales forces, who are going out to all parts of the world and knocking on independent hotel doors, as they create demand for their services, it creates a need for a central reservation system even at an independent hotel. Then that central reservation system really opens up that hotel to a world of demand that's outside what they have today. It's a very good trend us, and we do see property growth in the GDS because of the CRS trends.

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

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

This is Rick. I think we'll see a little bit more of that impact going forward, to Tom's point, and apropos to your question, Brian, in the first quarter as you saw in our release, we had air bookings growth of 2.7% year-on-year. We had non-air bookings up 3%, so that's a relative ratio right now. [Source of my] question. Very helpful. Thank you.

Thanks, Brian.

Bhavan Suri, William Blair.

Hello, guys. Nice job. Can you hear me okay?

Yes, thanks. Bhavan, how are you?

Thanks. Good. Just to start off, first on Etihad, it's something that you guys have a great relationship and a partnership there. We haven't heard anything about the Etihad partnership maybe for a couple of quarters, and its impact to the pipeline for Sonic and for the airline solutions business. Any update there would be great.

Several of the airlines that are in our implementation pipeline have a relationship with Etihad. We obviously have to sell into those airlines separately. They have a point of view based on the agreement that they have with us where they use a very broad portfolio of our technology. They have a point of view that the business model improvements that we can provide across both revenue growth and cost management because of our system footprint, a big system footprint, is beneficial. They've been helpful to us.

Alitalia is an Etihad investment. Air Berlin is. Air Seychelles and Air Serbia are. We have a lot of business in the pipeline where they helped open the door for discussion, but again we have to sell those deals independently. Etihad is typically a relatively small investor in these companies, so we have to sell into the companies themselves, but there's good activity there. Again, those deals are not just SabreSonic CSS deals. They are very broad footprint and technology deals.

That's great. Then a couple quick housekeeping questions, on the analytics business, how are you guys pricing that?

We're pricing on, really for the most part, we're pricing the same way we price in our other systems, which is on a business metric, which is typically passengers boarded.

Okay.

Let me add onto that. The Intelligence Exchange platform can do a lot of different things, so it's priced on a passenger boarded basis. As applications are added to the platform, we can get increasing revenue per passenger boarded.

Got it. That's still a software-as-a-service delivery model, right?

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

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

There is pretty significant technology sharing. As an example, the most compute-intensive system that we run is the pricing and shopping complex for airline. Whether it's somebody shopping on Expedia or whether they are shopping at American Express business travel, they're hitting the shopping system, and that's again the most compute-intensive.

That system is exactly the same across the Travel Network, and airline solutions as an example. There's a whole bunch of other services that you can imagine are also consistent, things like ticketing, how we store data, how you create the customer record, so basically the profile system. Those systems are shared across the Travel Network and the airline reservations business, and increasingly we're looking for ways to share them across the hospitality business.

Yes, makes sense. That's it for me. Thanks, and nice job again.

Thanks.

Jason Kupferberg, Jefferies.

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

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

Great. Any update on the $500 million Travel Network acquisition expected to close in 2Q? I just want to ask if you can provide any more information on the acquisition and maybe give an update on timing?

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

Great. Thanks for taking my question.

Thanks, Ryan.

Abhey Lamda, Mizuho Securities.

Hello, guys. Thanks for squeezing us in. This is Jim Shaughnessy on for Abhey. Real quick, at the low end of your targeted debt to EBITDA range, I'm just wondering how we should think about that going forward? Is 3.0 to 3.5 still the range we should think about, or is there opportunity to lower it? Just color around that.

Yes, Jim, as we've said, we've targeted to get to 3 to 3.5. We've gotten to the bottom of that now. We think 3, around there, is a good target for optimal leverage right now, for the benefit of the equity shareholders. We think that takes advantage of the debt and the tax benefits, the low cost of debt right now, and lowers our total cost of capital.

We've shown that we have plenty of flexibility and a strong flexible balance sheet to manage it about that three times level, and remembering that does allow us a little bit of flexibility if in fact we have a little bit of M&A to stay within those ranges. Then operationally, with the cash flow and the growing cash flow that we're reporting, you can bring it right back down to that leverage. Then, as said before, we have a dividend we're paying. We have a target payout ratio that we can always look to increase that slightly. Right now, we're not in the business of buying back shares. We've just gone public and done our first follow-on, so that would be something a bit later to consider perhaps.

Yes, from an M&A perspective, we're actively looking at things out there because we think that this platform that we have built, not just the technology platform but an ability to sell globally, ability to deliver globally, and ability to have development on the local level or on a global basis, gives us just a really strong platform to plug in new services for our customers. We're active at looking at tuck-ins, certainly across the solutions business. We hope we find gems out there that we can grow both from a revenue standpoint and get the cost effectiveness of our platform to really make M&A make sense for us.

We have got some 2016 debt coming due that we'll need a little bit of cash for that.

Got it. One quick follow-up, if I may, can you provide any sort of color around the reaction from some of the other potential customers in the industry on the results of the Wyndham deal? Have you seen a ramp-up in conversations or build in interest as a result from some of the larger chains?

Yes, absolutely. People want to know more about what we're doing. We've obviously been out knocking on doors and having conversations. You get a good credibility boost when back-to-back in two quarters, we announced the property management system deal, and then the central reservation system deal with the SynXis Enterprise Platform at the biggest operator in the world. I think Wyndham's very well respected from the standpoint of their ability to operate with 1,000 properties in China. It's a very interesting place for us to get as a first [birthday] win in that sector, and certainly the rest of the sector is taking notice. We're having good conversations with a number of people.

Great. Thanks a lot.

Thank you.

With no further questions in the queue, I'll turn the call back over to the speakers for closing remarks.

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

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