Sabre Corp (SABR) 2015 Q2 法說會逐字稿

Good morning, and welcome to the Sabre second-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 would now like to turn the call over to the Senior Vice President of Investor Relations, Mr. Barry Sievert. Go ahead, sir.

Thank you, Sharday, and good morning, everyone. Thanks for joining us for our second-quarter earnings conference call.

This morning, we issued an earnings release which is available at our website at investors.sabre.com. A slide presentation, which accompanies today's prepared remarks, is also available during this call on the Sabre website. A replay of today's call, along with the slide presentation, will be available on our website beginning this afternoon. Following today's call, we invite investors with additional questions to follow up with Investor Relations.

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

We would like to advise you that our comments contain forward-looking statements. These statements include, among others, disclosures of our guidance, including revenue, adjusted EBITDA, net income, cash flow, CapEx and earnings guidance, our expected segment results, the implementation and effects of recent agreements, products or acquisitions, our expectations of industry trends, and various other forward-looking statements regarding our Business. These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. Information concerning the risks and uncertainties that could affect our financial results is contained in our SEC filings, including our Form 10-K for the year ended December 31, 2014.

Participating with me on today's call are Tom Klein, our President and Chief Executive Officer; Rick Simonson, our Chief Financial Officer; and Chris Nester, our Treasurer and Senior Vice President of Finance. Tom will start us off with a review of our strategic and commercial performance. Rick will then offer perspective on our financial results and 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, everyone, and thank you for joining us today for our second-quarter earnings call. This quarter delivered the accelerated growth that we have been talking about since early in this year, with strong financial results across the board.

In addition to the financial results, our strategic focus has delivered excellent business results. This includes our continued emphasis on delivering innovative technology solutions to our customers that increase our ability to sell deeper into our customer base and deliver an impressive breadth of capability.

Since our IPO a little over a year ago, we've brought 29 new solutions to market; solutions that, in many cases, are completely unique in the marketplace. That, along with the additional sales like the LATAM Airlines deal, the logical and strategic Abacus transaction, the solid financial execution, things like the refinancing of our 2019 bonds, all continue to strengthen our Company.

Our year-to-date performance and continued momentum has put us in a position to increase our full-year guidance. For the quarter, total Company revenue was $707 million, a 9% increase. Adjusted EBITDA increased 6% to $228 million, and adjusted earnings per share for the quarter were $0.27.

For Airline and Hospitality Solutions, we're selling deeper into current customers, with a strong value proposition, and we continue to add new customers as well, resulting in a 16% increase in second-quarter revenue and excellent execution overall that delivered 29% adjusted EBITDA growth. In Travel Network, revenue increased 7%, and adjusted EBITDA grew 4% for the quarter. This strengthening is consistent with our view coming into the year. We've seen a year's worth of new customer growth, expansion in EMEA, and now improving North American growth. Combined, these factors drove second-quarter revenue above our 4% to 6% target range.

We recently announced that LATAM Airline group, the largest passenger carrier in Latin America, has signed an agreement to standardize on our SabreSonic suite, adding to our list of top-tier airline customers leveraging the solution and increasing our already significant implementation pipeline. At American Airlines, we're together working on the largest airline implementation in our industry's history. Things are on track to be completed in October of this year.

In addition to our momentum in SabreSonic, we continue to drive growth across the board with our AirVision and AirCentre suites of commercial and operations solutions. And as I noted, we continue to add innovation to existing solution releases, and add new solutions that are industry firsts, like Intelligence Exchange.

In Hospitality Solutions, we've extended our innovation leadership in central reservations, property management, and digital marketing services with the SynXis Enterprise Platform. The SynXis Enterprise Platform provides hotels a single integrated system where they can ensure room availability, rates and inventory data, as well as customer reservation data, are always in sync in realtime. That means our hotel customers maximize profitability by never missing a booking or an opportunity to serve a guest seamlessly with realtime data when they arrive on property, regardless of the channel where the guest reservations were booked.

As hotels adopt the SynXis platform, they're seeing a 5% to 8% average daily rate uplift in steady-state. That's a spectacular value proposition for any hotel operator. Our recent agreements at Wyndham and Four Seasons will have us serving over 24,000 properties around the globe on our SaaS platform.

Our hotel customers have asked us for assistance in key areas like eCommerce. The SynXis Booking Engine in-context suite enables hotels to bring realtime rates, availability and inventory directly into the most relevant and popular pages of a hotel's website. That combines the point of greatest inspiration with the point of sale in an innovative way, and drives incremental bookings and upsell.

In Airline Solutions, we have several unique solutions recently introduced in the market, including Intelligence Exchange, a highly configurable data extraction analysis and action tool that is unique in the airline industry. And both Customer Experience Manager, and Dynamic Retailer, help airlines deliver the next generation of customer service and revenue uplift. Airline and Hospitality Solutions remain on a strong growth trajectory, and we'll continue to work to out-innovate our competitors, provide more opportunities for existing and new customers to improve their performance with our solutions, and implement our sold backlog of business.

Similarly, in Travel Network, growth is supported by our commitment to innovation and continuously increasing customer value; value that has attracted more salable content to the Travel Network than any ever before, in addition to the more than 110 airline customers that have signed up to leverage our rich media, air extras, ancillaries and branded-fare capabilities that support the core changes our airline customers are making as they evolve their marketing strategies.

We cemented our position in Asia-Pacific in Travel Network with our acquisition of Abacus on July 1. This strategic move focuses on a core business where we can win, and on accelerating our growth. This is a business we're confident we can make better and grow faster than it was able to as a joint venture with 11 other partners.

Our technology has been deeply embedded in the Abacus offering for many years, and I am confident that we'll integrate Abacus quickly and effectively. We have had a senior and experienced team on the ground in Singapore since mid-June who will also benefit from the significantly ramped-up direct sales and account management capabilities that we bring to the table; capabilities that we believe are best-in-class in our industry.

In summary, we had a strong financial and strategic performance through the first half of the year, and we enter the back half with significant momentum and strong proof points of success. We have the confidence to increase our guidance for the full year.

And with that, I'll turn the call over to Rick to walk through the financials and our full-year guidance.

Thanks, Tom.

Looking more closely at Airline and Hospitality Solutions in the quarter, 139 million passengers were boarded using our SabreSonic reservation system, representing an increase of 6% year over year, powered by solid growth in our customer base. Airline and Hospitality Solutions' revenue grew 16% for the quarter.

Contributing to the increase in revenue was the increase in airline passengers boarded through SabreSonic, strong traction from new solutions across the portfolio, and continued strong growth in Sabre Hospitality Solutions. Solid execution in operating leverage from the scale of our technology platforms drove a 29% increase in adjusted EBITDA to $81 million, resulting in adjusted EBITDA margin of 37.4% for the quarter, up nearly 4 points year over year.

At Travel Network, bookings increased 9% in the quarter. This excludes Abacus, as our acquisition was completed in Q3, so all geographies posted solid growth. North American booking growth accelerated from the muted trends of the last few years, increasing 7% in the quarter.

Europe, Middle East, Africa -- EMEA -- growth, driven by new agency conversions and solid share gains, continued to be, rather, a highlight for the Business. Sabre's EMEA bookings increased 20% in the quarter, compared to 3% in the region overall. Our growth in the region is up over 2 points year over year. Globally, our second-quarter share is up over 1 full point from year-ago period.

Supported by this strong bookings growth, Travel Network revenue increased 7%, and adjusted EBITDA increased 4% in the quarter. And as a reminder, the revenue and adjusted EBITDA were augmented in the year-ago quarter for Travel Network by a payment of $7 million related to the contract termination as part of the business model transition that led up to the sale of Travelocity to Expedia. Hopefully that helps you in your modeling year over year.

Growth across our Business was strong, and we're tracking toward a very solid year of growth. Let me do a quick recap of the consolidated quarterly results. Revenue was $707 million, an increase of 9% year on year, resulting from 16% growth in Airline and Hospitality Solutions, and 7% growth in Travel Network.

Q2 adjusted gross profit totaled $313 million, a 9% improvement from the same period in 2014. Total adjusted EBITDA increased 6% to $228 million. Adjusted net income grew 33% to $76 million, and Sabre consolidated adjusted earnings per share were $0.27 for the quarter.

Moving to the balance sheet and cash flow, we generated $70 million of free cash flow from Sabre consolidated adjusted EBITDA of $228 million, an increase of 32%. Year to date, we've generated free cash flow of $140 million.

Total adjusted CapEx for Q2 was $81 million, including capitalized implementation costs of $15 million; upfront software fees collected from customers totaled $15 million as well. We continue to expect capitalized implementation costs and upfront fees collected to largely offset on a full-year basis.

Total net debt was $2.6 billion as of June 30, reflecting significant net debt reduction from year end, 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, or 3.3 times pro forma for the recent Abacus acquisition.

Early in the second quarter, we successfully redeemed $480 million of 8.5% 2019 maturity bonds. These bonds were redeemed through the issuance of $530 million, 5.375% senior secured notes due in 2023. The amount issued covered the 2019's principal, accrued interest and related fees, premiums and expenses. The lower rate results in a $12-million reduction in annual interest expense going forward.

So, looking ahead to the back half of the year, our strong results and continued momentum give us confidence to increase our full-year guidance. The increases from our previous guidance are driven by the revenue and earnings strength we're seeing in Travel Network, and to a smaller extent, the impact of closing the Abacus acquisition a month earlier than previously forecast.

For the full year, we now expect revenue of between $2.95 billion and $2.98 billion. Approximately half of the $60-million revenue guidance increase is driven by strong underlying trends at Travel Network, and half is attributable to the timing of the close of the Abacus acquisition. For Sabre consolidated, we're also increasing our guidance for full-year adjusted EBITDA to between $930 million and $945 million.

Now, specific to Travel Network, strong first-half growth and continued momentum has led us to increase our full-year expectations. We expect continued strong Travel Network growth in the back half of the year, even before considering the impact of Abacus. So, excluding Abacus, we now expect full-year Travel Network revenue growth of over 5% on bookings growth of approximately 6%, well within our medium-term expectations of 4% to 6% top-line growth and ahead of our expectations we previously communicated for 2015 in Travel Network. Including Abacus, beginning July 1, we now expect Travel Network revenue growth of 13% or more, driven by bookings growth of approximately 17%.

In Airline and Hospitality Solutions, our full-year expectations are unchanged. We continue to expect full-year passengers-boarded growth of approximately 10%. We expect full-year revenue growth toward the higher end of the 9% to 11% range we've discussed all year, including expectations for mid-single-digit revenue growth across the back half of the year. Importantly, we expect Airline and Hospitality Solutions revenue growth to revert back to the mid-teens beginning in Q1 2016.

Let me try to shed some light on our expectations for the balance of the year for Airline and Hospitality Solutions, given these dynamics. As a reminder, in Q4 specifically, we expect much stronger passengers-boarded growth with the planned cutover of American Airlines in October, but expect Airline and Hospitality Solutions revenue growth in the mid-single digits and EBITDA to be flat to down modestly year over year. This is primarily a function of the anniversary of a strong 2014 fourth quarter.

Also, we currently provide services to American Airlines for their legacy reservation system that will end when the implementation of SabreSonic is complete. Passenger-boarded-driven revenue under the new SabreSonic agreement will be significantly more than the services revenue we have been realizing, but not entirely incremental, given the previous revenue stream.

For Sabre consolidated, we expect full-year adjusted net income of between $290 million and $305 million. We expect adjusted EPS in the range of $1.05 to $1.11. Full-year adjusted free cash flow is forecast to be more than $290 million, and free cash flow is expected to be more than $240 million, with the primary difference being essentially the last of the American Airlines credits being used. Full-year GAAP CapEx is expected to be approximately $260 million, and capitalized implementation costs of approximately $75 million.

In summary, the second quarter was strong, and our momentum in Travel Network, and continued strategic and commercial success across the board, has enabled us to increase our guidance for the full year across revenue, adjusted EBITDA, and adjusted EPS.

With that, back to you, Tom.

Thanks, Rick. So, here we are at the midpoint of 2015. We continue to demonstrate that we have the capability to out-innovate our competitors, and deliver on our strategic and financial objectives. We are on a trajectory to deliver strong full-year results, and enter 2016 with increasing momentum.

So, with that, we would like to thank you all for participating today, and I will ask Sharday to open the call for questions. Sharday?

(Operator Instructions)

Ashish Sabadra, Deutsche Bank.

Hi, guys, this is Brian Keene in for Ashish. Congrats on the great results. I just want to ask on GDS bookings, they are obviously very strong; up in North America and EMEA. In particular in North America, what drove that strength in bookings and were there share gains from AMS and travel ports in Europe as well?

Yes, Brian, let me take a stab at that. Look, we said coming into the year that we thought we would see capacity growth in the US market, in particular, outstrip what we had seen in the trailing, really, three or four years. Some of that came to fruition, so I think we've seen good capacity growth in the US. Bookings seem to have recovered; there are certainly some segments in the market that are dampened.

There's a lot of talk about the energy sector in general being down. The financial sector still a little bit soft, but in general corporate bookings are moving back in the right direction and we think the leisure bookings have really picked up with increased capacity. So the US market is performing a little better than we expected, but we did expect to see that lift.

We've been talking about it for a couple quarters now and we're really happy to see it show up. We hinted at it first quarter. Really once we got past January, we started to see a good trajectory with sequential growth month over month in the early part of the year and things have stabilized at a good year-over-year number in the North American market.

In Europe, as Rick said, we've been taking share for a couple years now. We just saw a full 2 points of share shift in EMEA over the last 18 months or so. As Rick mentioned, we saw 20% year-over-year growth in a market that's growing in the low single digits, so we're really pleased with our ability to move the needle in a place where we feel like we can grow profitably and steadily.

This isn't -- as I mentioned before, the EMEA isn't business where we are lopping off a big chunk of bookings from one customer. This is a lot of travel agencies that have converted over time to Sabre and as we start to aggregate that, we're starting to see really good growth rates there

Brian, this is Rick. Just looking globally, too, it looks in Q2, by our estimates, we actually -- in bookings we grew ahead of the market in all regions. So we've really highlighted what's going on in North America, because that's the primary driver of our continued strength in Europe, Middle East, Africa. But importantly, Latin America and APAC, we grew ahead of the market gross in that region based on our number. And, of course, all of that contributes to the overall market share gain and, of course, the revenue growth that we have seen driven off of that as well for Travel Network.

It looks like great momentum. The LATAM contract, do we know when that starts to ramp up?

They haven't announced when they are going to do that cutover, but I suspect we will be in 2017. And as you probably are aware, there are five separate airlines in the LATAM group. The primary win here is moving the biggest airline, TAM in Brazil, over to the SabreSonic platform, which the other airlines are currently on. TAM by itself is bigger than the Latin American carriers that LATAM has. So we expect it sometime in 2017, but until they are ready to communicate as the time line and the date, that's probably all we will say about it.

Okay, just last question for me, there was some obvious noise in the marketplace about [Luthan's] surcharging for some flights booked through GDS. Just like to get your thoughts on potential implications for the market? Thanks so much

Yes, Brian, thanks. I said not too long ago at an investor forum that I thought this would turn out to be a great proof point for the stability of the global distribution business and for Sabre's business. I'd start out by saying it feels like a bad strategy for everyone. I think it's a bad strategy for Lufthansa. They book nearly two-thirds of their tickets through the GDS today.

The surcharge will be added into the cost of the ticket, will make them uncompetitive versus their core competitor set. And this is an airline that, I believe if they are not at the top of the list they are in the top two or three airlines as far as the value they extract from the global distribution system channel.

They have a complex network; they have a United Nations of passengers on their airplanes; they get point of sale from all over the world. And those are all things that are facilitated by third parties, like travel agents who use the GDS. So I think for Lufthansa, it's a difficult strategy to make yourself uncompetitive. From a travel agency perspective and from a corporate travel buyer perspective, it creates additional IT costs and back office costs, reduces efficiencies for agencies and for corporations.

And if you are a buyer of travel, the notion of a supplier telling you how you have to buy and increasing your cost to purchase isn't consistent with the trend in corporations around the world who are looking to drive procurement processes that actually do the opposite, make things more efficient, more effective and less expensive to buy.

And then finally for consumers, consumers want transparency. They get that through the choice and transparency that's delivered through the GDS, which gives them confidence to buy. The notion of a family of four booking through their preferred online travel agency or local travel agency, paying EUR64 more for a family vacation, again, in an industry where people match a $1 fair move, seems like an odd thing to go out with.

We'll see how it plays through. It will take some time before this plays out, but we feel very good about our business and the value proposition we have for airlines.

Perhaps I can bring it to Sabre as well, since we covered this all in one place, is just to put it in perspective, even if the surcharges do go into effect, given our geographic footprint, only about 2% of our global bookings are on and within the Lufthansa group. So it's relatively minor and quite manageable.

But I think what's important is those bookings largely would be expected to stay within the GDS system because Lufthansa continues to book there. And as well, if people who book move to other competitive airlines, they, again, will flow into the GDS market in the rates that they have, so we don't see any real net affect there, if they go into effect in the near term.

Okay, great; I will pass it along. Thanks.

John King, Bank of America.

Good morning, guys, thanks for taking the question. And congrats on the results. Just first of all, on the market-share side in the GDS business, obviously a good pickup in Europe and it looks like the US as well was pretty strong in Q2. How sustainable is that for the second half? Maybe you can just help us with what you are assuming there in terms of market share gains versus industry growth for the GDS in the second half of the year?

Second one was on the backlog of deployments that you have in the Solutions business. If you can just talk about the update there of those things, tracking to plan in terms of the time line and as we think about the 2016 forecast, how those deployments are looking?

And then the third one was just if I could ask on the 2017 free cash flow guidance, is there any reason -- is there any temptation at all for you to revisit that in the light of the Abacus deal? I think you struck that before Abacus, so perhaps any comments around the 2017 free cash flow guidance and how you are feeling about that? Thank you.

Thanks, John. So let me start with sustainability of share gains. We have a long-term trend of being able to move market share to Sabre around the world, whether it be by partnering with the strongest of the strong, so talked about premium shares with companies like Expedia, American Express, Cross [Envoganley], BCD, all companies that have the majority of their business on Sabre. So growing with the biggest players has been a good stimulator of share.

We also have 80 of the top 100 corporate travel purchasers from a multinational corporation perspective with direct contracts to Sabre. Again, companies that at times grow faster than the market and also expand the use of Sabre through their big global footprint. We have some natural growth engines in some of the sectors that we serve.

That said, I've kind of described it as on-the-ground, hand-to-hand combat to grow share by selling more new travel agencies than our competitors. And we think we are outpacing our competitors by a significant margin on adding new travel agency contracts to the Sabre portfolio. It takes time. Those are, again, one agency at a time.

These are not the biggest players in the world, but we like that fragmented travel agency business around the world is how we are growing in Europe. We're not dependent on any one single customer to drive that 2 points of share we talked about. It's dozens and dozens, and in some cases, hundreds of customers who aggregate up to have us growing share.

Our expectation going forward is, as the owner of the Asia-Pacific market, which before we participated in a joint venture, we're going to bring that same intensity from a sales and marketing perspective to the Asia-Pac market and we expect that we will add that to our footprint of places where we can grow market share. Our expectation is it's sustainable. That, again, we have aggregated a very fragmented part of the market as we gain share and we believe that it will stick.

On the SabreSonic side, American announced and we have now firmed up, that the American migration will be completed sometime in October. The rest of the carriers, as we have said before, are going to be into mid-2016 and early 2017. And we haven't communicated the specifics of individual carriers, nor will we, until the airlines are ready to announce that date to their customers and their various stakeholders.

So I would say things are on track as expected as we start to give guidance -- as we get towards the end of this year and start to give guidance into 2016, we think some of these dates will start to firm up and we'll be able to give guidance, at least from a standpoint of year or quarter or a month that we are targeting for some of these implementations.

John, this is Rick. On free cash flow, remembering when we announced the Abacus acquisition, we updated our CapEx and resulting free cash flow. As we said we're going to spend some additional CapEx one-time, kind of a bump cost to work on getting all the right kind of new features, functionality, localization in there. $10 million, so that was increase, all else equal in our CapEx estimate for 2015 and that, by itself, brings down similarly, the free cash flow.

But then looking forward to your question of does the Abacus change our outlook, obviously it adds to free cash flow as we get past the 2015 cost of implementing integration, the additional one-time bump in the ratio of CapEx. And so coming back to what we've look at over medium-term, looking out across to 2017, where I've said clearly we expect free cash flow to be $500 million-plus, Abacus just helps us be strong in that. And that's where we are in the guidance.

And obviously you see the bridge across 2016. And, again, there is some incremental addition in 2016, all else equal, with Abacus, given that we've said in 2016 Abacus incrementally would bring about $300 million of revenue and EBITDA of about $50 million. But, again, we were getting service revenues from the joint venture there that flowed through pretty strong to free cash flow. So it isn't all incremental but, all in all, this just helps give certainty on those free cash flow numbers that we talked about in 2016 and 2017 with the addition of Abacus and we should be able to build from there.

Got it. Thank you, guys.

Thank you.

Gregg Moskowitz, Cowen and Co.

Okay. Thank you very much and good morning, guys. Congratulations as well on a really strong quarter. Just a follow-up on Abacus, with it obviously being now officially under Sabre with 100% ownership. Just wondering if you can give us additional insight how you plan to ramp up direct sales [and] account management going forward?

Sure. First of all, it's early days, right? So we're closed on July 1. As I mentioned, we have a senior group of folks on the ground there. And I think the opportunity is really in a couple areas. One is, you had a joint venture that was very productive, has the leading share in Asia with 36% share and has had good growth rates, but it had 12 partners. And when you have a venture with 12 partners, decision-making isn't as quick as you might want it to be.

We think we can improve the overall clock speed of how we make decisions, how we get things done for customers, and also remove the layers that are inherent in a joint venture structure between our products teams and our go-to-market, so that we're actually talking to customers on a direct basis, getting them the stuff they need, delivering innovation that they need in the market in a faster way.

And then the last part of it is, we do feel strongly that we have the best sales capability in our industry and when we run the direct sales organizations, we are very effective. We've been able to move share in our airline business and our hospitality business and in our travel network business by having a really well-run, well-managed sales force that understands where the value points are for our customers and that's what we are going to bring to the table in Asia.

It will take a little bit of time to ramp it up, but we're going to push really fast to get those best practices in place and we've bought this business to make it better and to grow it. And that's what our expectation is going forward.

Okay, thanks, Tom. And just for Rick, you've spoken often in the past about reaching Solutions EBITDA margins of 35% to 37%. This quarter you went north of that. How are you thinking about margins in this segment over the medium to longer term?

Yes, in the segment and Airline and Hospitality Solutions, we've said we were going to move from 30% in 2014 to the high 30%s through 2017. And we reached 36% here recently and we had a quarter here well above that 37%, so we're well on our way.

I think just a proved point. As mentioned before in the quarters, you can have volatility a little bit, but I think most of our volatility on that margin is going to continue to just be showing that we have the scale, we've got the efficiencies there to have those revenues reach the high 30%s in that timeframe that we said.

We've also mentioned that that isn't a cap as we continue to scale, remembering that our Hospitality Solutions business, in terms of relative scale compared to airlines, is still rather nascent. And we will get the benefit of further scale there as we grow that business both in our enterprise sector and enterprise system and also continue to place strong in the independent chain where we really build our business there.

So moving from the 30%s to the 36% level that we had last year and we're showing here in this year, in 2015, we are solidly in the mid to high mid 30%s range on our way to high 30%s.

Great, thank you.

David Togut, Evercore ISI.

Good morning, it's Lorraine on for David Togut. Could you please comment on the GDS booking fee in the quarter and what should we expect in terms of pricing over the next 12 months? Thank you.

This is Rick. In terms of our numbers in the quarter, again we had great strong bookings growth. We grew faster than the market in every region. We grew overall share of revenues up strongly and then the flow-through was good. It was a little bit muted, but that is primarily a little bit of FX headwind and the comp that we had from last year that I called out, the $7 million. So that's why that -- it's really not anything different that we're seeing in pricing dynamics; that's been pretty much similar.

That's very helpful. Could you just update us on your capital allocation priorities? Are there any more opportunities to refi debt and what types of acquisitions are of most interest to you?

Sure. Our capital allocation remains the same, is operate in our debt range and pay down debt first if we're in the higher range of that. Again, remembering we're operating around 3 times leverage is where we have targeted. We said we can operate much higher than that. We've shown that. But we felt that this 3% to 3.5% is a range that handles both operational and M&A. So let's look at that Abacus. We acquired that. And on a pro forma basis, as we're sitting here now, it puts us back up to about 3.3 times leverage.

And we're drawing a very modest amount on our revolver with that. We said we expect to pay that off largely by the end of the year. We'd be back down at the 3%, 3.1%, so that would be the first use. We have a dividend and we continue to pay that. And then the excess free cash flow above that is going to be used selectively for acquisition, primarily around in the hospitality space where we've done both acquisitions that are scope and scale feature. They tend to be in the tens of millions to hundred millions of dollars of range. That's our primary focus now that we've done the large integration and acquisition of Abacus in Travel Network.

And then your question in terms of the refi opportunities. We've got 2016 bonds that are rather higher cost. We said before that previously we have paid down what we could to do that efficiently. We've got kind of a make-whole there. And what we'll be looking to do within that mix is then pay those down, refi those to work within the target debt ranges. And, of course, that will help us gain some efficiency in our overall debt cost which we've brought down significantly. So that's the next area where we'd look to focus and hit the markets at an appropriate time.

Thank you.

Jim Schneider, Goldman Sachs.

Good morning; thanks for taking my question. Tom, I was wondering if you could maybe give us an update on the Airline Solutions pipeline in terms of new deals? You obviously have announced quite a few new deals in the first part of the year. And I'm just wondering, how does that pipeline look over the next six months into the back half? And any sense about whether you are getting close to any additional large deals you can talk about?

Sure Jim. I think a couple things. We've said, first of all, that there is a big opportunity that continues to be out there for the SabreSonic Suite, which are essentially the airline reservations and departure control area where a number of airlines continue to have this as an in-store service and then there is a number that are with competitors that, frankly, haven't been winning in the marketplace and maybe have under invested in the Solutions set.

So we see a pipeline out there of somewhere in the neighborhood of 650 million or so passengers boarded that don't sit on either the Sabre or Amadeus current platform that we think will be out for bid -- in some cases already out for bid. And we are working that all the time, Jim, and I'd be hesitant to give you too much insight into where our salespeople are spending their time right now. That said, we have a broad portfolio of services. And I talked about 29 new products in the market. Many of those are in the Airline Solutions business. A number are also in the other two businesses.

But in Airline Solutions, as an example, a solution like Intelligence Exchange, which I mentioned earlier in my comments, is a high revenue-generating solution for us, not at the scale of the SabreSonic suite, but when you look at it across our other Solutions, it's one of the higher revenue-generating Solutions. And as we mentioned last quarter, we have work going on at Southwest Airlines, at Aeroflot; we have installed capability at Cathay Pacific and British Airways on a Solution that nobody else in the marketplace has.

So those types of adds are really -- our sales activity, we see 25 to 30 deals a week that are closing that are either upgrades or new sales or add-ons to current customers. So our sales momentum is really -- we have those lumpy deals that are those airline reservation deals where we might see five or six a year come up for bid, a couple of them may make a decision. On the other hand, we have dozens of deal every week that we work. And again, if it's a solution like Intelligence Exchange, it could be a nice revenue pop for us.

That's probably as much as I want to give you on, again, where our salespeople are spending their time.

Okay, fair enough. And just maybe as a follow-up, a couple different people asked a question about the share gains in Travel Network and whether those are sustainable. Any thoughts about the dispersion and the number of new customers, new partnerships in EMEA? If you look at EMEA specifically, given the strong bookings growth you are seeing, is it possible that share could still go up a little bit from current levels or is this the right level to think about going forward?

I think we have confidence that we can continue to move 1 point to 1.5 points per share a year. And we've talked about before the notion that there's markets across EMEA, and now there are a few across Asia-Pac, where we are just under weighted. So we have very little business in the continent of Africa, as an example. We are very underpenetrated there. It's a big opportunity for us in EMEA.

We have markets, like some of the historical strongholds of our big European-based competitor, the markets like Span and Portugal where, historically, they been virtual monopolies. And we think that we could shave off a little bit of fair share there because people are looking for choice and they are looking for product innovation that maybe a monopoly player is not going to bring.

So we think there are some unique opportunities across EMEA. And then in markets where we have established ourselves with meaningful share, like we have in the UK, like we have in some other places, we think we have good proof points in the market that are great referral customers and will continue to grow business.

I mentioned Asia-Pac. One of the idiosyncrasies of the joint venture at Abacus was that the carriers were most -- the airline partners were most interested in the markets where they had the most service, which are their home markets. So a market like India, where we didn't have an Indian partner in the joint venture, in our view is probably a bit under invested. It's a big important market. We have decent share there, but we feel like we're under weighted in a market like India. So there are opportunities out there for us to continue to grow share and we would expect that's what we will do.

Great. Thank you.

Jason Kupferberg, Jefferies.

Hi, guys, this is Ryan Cary calling in for Jason. Thanks for taking my question. First we've recently seen some announcement of carriers expecting to increase the supply of seats going forward. Do you believe this could be a trend that could continue and do you think it could prove to be a further tailwind to the GDS business? And what kind of capacity growth do have you built in to expectations over the next few years, fitting into that longer-term 4% to 6% travel network growth target?

That's a great question, Ryan, and I'm not sure I'm going to satisfy you much here because first, I said we've seen better capacity growth in the US than we've seen in the trailing three or four years. There's no doubt that that has materialized.

That said, the airlines most recently have been a little bit inconsistent about how they are messaging their capacity growth. So what we do is really, most of your firms have airline analysts that model this stuff. We take the Boeing and the Airbus forecast and we kind of look across all of those different capacity numbers and take a best guess. But we don't do a bottoms-up capacity growth for the whole industry.

We do have some insights into the customer set that we have, using SabreSonic, for example, where we have a little more insight into their specific plans in how they build out capacity. But we're looking at probably the same numbers you have access to across the industry, and that's generally what we use. But I would say that, again, the airlines have been a little inconsistent on their various earnings calls about how they are communicating what's going to happen with capacity.

But the basic shape of that that allows us to play into and be able to execute to meet our expectations that we share with you for growth. We don't need a big jump in airline capacity to execute into what we've talked about over the rest of 2015 here. So it seems that that capacity is fine to neutral for us.

Yes, I would say the one validation is, look, over the forward three years or so will be better than the trailing three years. So, look, we do have a tailwind there. I'm just not going to speculate on is it going to grow a half a point or a point faster than what people are saying

Great, thank you. And quickly on the Airline Solutions side of the business. It looks like on a year-over-year growth basis, there was a modernist deceleration in passengers board in the second quarter, at least versus the first quarter. Is this primarily related to the loss of the small client you called out in the first quarter?

Yes.

Yes, that's really all that's going on there.

Okay. Great. Thanks so much, guys.

Thank you.

Brian Essex, Morgan Stanley.

Hi, good morning, and thank you for taking the question. I was wanting to follow on to Greg's comment or question on the Solutions -- Airline Hospitality Solutions margins. It looks like actually the incremental margins are quite high in terms of being over 60% incremental EBITDA margins over the past four quarters or so.

And if we look at this on a go-forward basis, can you provide any color in terms of the contribution margins from Solutions Airline, whether it's SabreSonic or Airline Solutions or Hospitality Solutions and how we might think about your pipeline and go-live dates as it relates to those contribution margins, how they might move those going forward?

Yes, Brian, thanks, this is Rick. I can kind of re-walk. What we've talked about here is, again, as I talked about moving from segment level Airline Hospitality EBITDA margin of 30% in 2013 to 36%, in the mid-30%s to the high 30%s into the 2017 period, continues to be the case. And for the reasons you've pointed out, we don't view that as a cap. If we continue, as we expect, to grow beyond that and realize benefits of scale so that then the incremental contribution brings up your overall margin.

And then in terms of between the two different segments, as we've communicated before, given our mix of revenue between Airline and Hospitality, with Hospitality being in the low hundreds of millions of dollars the last couple of years and Airline being in the $500 million-$600 million, and the Airline -- excuse me, Hospitality Solutions segment revenue, if it were reported by itself, has been lower than the overall segment. And that's, again, a factor of building, investing for that consciously and then starting to get scale.

So as we scale with Hospitality, it's a contribution that the EBITDA margin level should begin to approach the Airline side. And that's another factor that's drives us from low 30%s to high 30%s and not a cap [growing] forward there. We haven't given specific margin profiles on the different reservations business, whether it's Airline, SabreSonic or the central reservation and the Hospitality, and we'll continue to look at the relevant metrics. We can help you out on that, but right now I'm not going to do it ad hoc on this call.

The one thing I would add to that that we are really pleased with is the amount of innovation that we've been able to do organically while expanding those margins. So, again, launching 29 new products over a period of time, most of which are in the Solutions business -- not all, but most -- is a really good tribute to the team's ability to balance both the operating discipline they need but also to invest in innovation and bringing new things to market.

Great. And you mentioned you were adding travel agencies to the platform. And I noticed both the cash payments of upfront payments as well as the amortization of upfront payments is kind of flat to down. Can we infer anything from those, either on a per- revenue or per-booking basis to extrapolate the tone of the environment you are seeing on the travel agencies?

No, I don't think so, Brian. That's exactly consistent with what we said coming into the year. And it's no drama, no change there, and pretty consistent with what I talked about.

Okay, great; very helpful, thank you

Thanks, Brian.

Abhey Lamba of Mizuho Securities.

Thanks. Tom, thanks for your comments on the inconsistency in how airlines are communicating about capacity in space.

(Laughter) Do you have any better insights for us?

No, I thought that was very helpful. Can you talk about the assumptions that are baked into your outlook for industry capacity over the next few quarters? And how should we think about the impact of slowdown in the related markets or the pockets you also mentioned in your comments a little while ago?

Abhey, this is Rick. I think the main takeaways, again, are capacity growth is greater this year than it had been in the previous two or three years. And all else equal, that's a good thing for the GDS market; it's a good thing for Sabre. And we see then the capacity growth going forward over the next couple of years to be greater than it was the previous few years as well, so we can play into that well. It's very supportive.

I think Tom's comment [and mine] was a little bit around earlier in the year the airlines were communicating greater capacity increase in the second half of the year than what they have recently. We never got over-carried away with that in the beginning of the year; never counted on it for what we need to execute in, so we've got plenty of room, we believe, in what the expectations are now in the shorter-term.

Thanks. And in Asia-Pacific, how long will it take for you to start reporting share gains? And how should we think about the situation in China on overall demand for travel in the region?

Yes. We'll talk about Asia-Pac as we get further along here. But I think, again, our view is that there are some places where we're just going to make business better and we're going to do that quickly and share gains will come with that over time.

As far as China goes, China is a regulated market. It's effectively a state-owned monopoly for both airline reservations as well as for travel agency distribution. There was some activity in China. We have a relatively large team on the ground in China. We had existing resources there. The Abacus acquisition probably doubled the size of our workforce in China, so we continue to work in a variety of opportunities.

We do have, as an example, in our Hospitality Solutions business and for most of the big brands, China is a top-three place for new property growth, particularly in that select service segment. Wyndham will have 1,000 properties in China using our central reservation system that will be a pretty big increase over what we have today, but we do have hundreds of properties across China.

We signed a deal with a Chinese hotelier, the first one that became part of our customer portfolio, HNL hotels in China last year announced a few quarters ago. So we feel good about our ability to get business where we are able to compete, but speculating on when the market will open is probably not a worthwhile folly.

This is Rick. With Abacus overall, of course, we're in this for the infinite long-haul, but the great thing is we've been able to communicate is that in 2016, we have very strong contributions to both revenue to EBITDA and to cash flow. And that helps our overall growth rates.

And even though we still haven't gotten the full benefit of all the integration, costs synergies that we are going to have there, as I have articulated before, that's going through in 2016. So even with those things, we're going to have a very positive additive profile from Abacus.

And along that way, there will be the quick wins in certain markets that Tom has alluded to, but we're really building to make sure we build off the strong growth Abacus was having earlier this year and look forward for the long haul and see the full benefits coming in financially in 2016 and 2017 as we have outlined before.

Great. Thank you.

Thank you.

Thank you. At this time, we have no further questions in queue. I would like to turn the call back over to Tom Klein for closing remarks.

Thanks again for joining us for the call this morning. We're pleased with the strong second-quarter results. We expect a very solid full-year results and increased momentum as we look to years ahead. So again, as always, we appreciate your interest in Sabre and we look forward to speaking with you again soon, either face-to-face or on our next call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.