Sabre Corp (SABR) 2015 Q4 法說會逐字稿

Good morning and welcome to the Sabre fourth-quarter and full-year 2015 earnings conference call. Please note that today's call is being recorded and also being broadcast live over the internet on Sabre's corporate website. This broadcast is 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 Senior Vice President of Investor Relations, Mr. Barry Sievert. Please go ahead, sir.

Thank you, Chris, and good morning, everyone. Thanks for joining us for our fourth-quarter and full-year 2015 earnings call.

This morning we issued an earnings release which is available on our website at investors.sabre.com. The slide presentation which accompanies today's prepared remarks is also available during this call on the Sabre IR web page. A replay of today's call, along with the slide presentation, will be available on our website beginning this afternoon.

Throughout today's call we will be presenting certain non-GAAP financial measures which have been adjusted to exclude expenses and other gains or losses related to restructuring, litigation and tax matters and certain other items. All references during today's call to EBITDA, EPS and net income have been adjusted for these items. The most directly comparable GAAP measures and reconciliations are available in the 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, EBITDA, net income, cash flow, dividend ratio, CapEx and earnings guidance; our expected segment results; the effects of recent acquisitions, implementations, agreements and products; our expectations of industry trends; and various other forward-looking statements regarding our business.

These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. Information concerning the risks and uncertainties that could affect our financial results is contained in our SEC filings, including our Form 10-Q for the quarter ended September 30, 2015, and our Form 8-K filed on November 4, 2015, and our Form 10-K for the year ended December 31, 2014.

Participating with me on today's call are Tom Klein, our President and Chief Executive Officer; Rick Simonson, our Executive Vice President and Chief Financial Officer; and Chris Nester, our Treasurer and SVP of Finance. Tom will start us off with a review of our strategic and commercial performance and then Rick will 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.

Thank you, Barry. Good morning, everyone, and thank you for joining us today for our fourth-quarter earnings call.

We had a strong close to 2015 as we continued to build momentum and capitalize on opportunities, a trend that started when we entered the public market in 2014.

Before we get into the financial results, let me share with you some of the drivers of our success. We're working closely with our customers to out-innovate our competitors, innovation and next-generation platforms that help our customers achieve greater travel intimacy, along with capabilities that are the foundation for future business model changes in our industry.

We brought over 30 new innovative and unique solutions to market since our IPO. Let me share just a couple of examples. Sabre Intelligence Exchange, which accesses disparate airline data to create passenger-centric innovation, rich analytic applications and automated business processes in a faster, more cost-effective way. And airlines are already seeing results, maximizing revenue, enhancing the customer experience and generating IT cost savings based on over 150 use cases and applications that have been deployed on top of this flexible platform.

Intelligence Exchange's recent new customers include Southwest Airlines, Aeroflot, Alaska Airlines and Jet Airways. Intelligence Exchange is an innovative and unique solution that you can only get from Sabre.

Our Dynamic Retailer allows airlines to dynamically offer varied services and products to customers right up until departure. It generates personalized offers based on customer history and preferences. Airlines are using Dynamic Retailer to dynamically price seats based on customer insights, helping the airline increase sales and conversions, deliver personalized traveler experiences and maximize brand loyalty. Virgin Australia, WestJet, kulula and Alitalia have Dynamic Retailer implementations planned for 2016.

And the SynXis Enterprise Platform, the most widely used in the world, provides a single unified platform that enables hotels to seamlessly integrate their technology systems and maximize the impact of their distribution strategy. It also gives chains and individual properties actionable insights by leveraging our growing portfolio of intelligence capabilities that help optimize channel mix, benchmark competitor performance and get smarter about their guests every time they walk in the door at any property on every trip.

And at the same time as releasing these new solutions, we've been investing in and readying some exciting new innovations in travel network, including the next big release of the Sabre Red Workspace that will be released this summer; their enhancements to the rich graphical merchandising capabilities of the platform that support increased ancillary and branded fair sales and enhance hotel capabilities. Additionally, the platform features agency revenue optimization tools in a beautifully designed user interface that will maximize agent productivity.

And we're innovating in other new releases of current products like with our Recovery Manager, an irregular operations re-accommodation solution. These solutions quickly optimize the process of repositioning planes, rescheduling crews and re-accommodating passengers in dramatically less time.

We benchmark our customers' recovery performance against others in the industry. We had a great proof point just a few weeks ago, as our customers were up and running after Winter Storm Jonas ahead of the competition.

And as I mentioned last quarter, we already have hundreds of millions of contract value closed across our new solutions, proof that we can bring innovations to market and have them quickly scale due to the strength of our platform and our global customer base.

Our strategy to deepen our customer relationships by adding more and more critical capability to our platforms in areas of strategic trends in the industry is paying off. In 2015, we exceeded our sales targets, we increased our share of wallet at customers and we signed important deals like the SynXis Enterprise Platform deal with Wyndham and the agreement to extend SabreSonic across the entire group at LATAM.

Late in the year we worked with American Airlines to execute the largest airline reservations technology integration in history. This project involved intensive collaboration between our teams to migrate data and integrate systems, allowing for a smooth transition to the SabreSonic solution. American's view is that it was the best project of its kind in the history of the industry.

And we focus Sabre on providing business-to-business SaaS products to the travel industry, investing in organic product development and acquisitions that add scale and customer depth. Acquiring Abacus gives us a wholly-owned leadership position in Asia-Pacific, where we'll increase the intensity of our marketing and sales to deepen customer relationships, driving share and growth in the region. The acquisition of Trust extends our leadership in hotel reservations while significantly expanding our non-US business.

During the year, Travel Network increased global share by a full point with gains in North America and 170 basis point share growth in EMEA. We improved our capital structure, refinancing high-interest debt with lowered interest expense and pushed out our maturities.

We bought back $100 million of stock and we reduced our overall leverage, providing increased flexibility as we look ahead. And finally, we delivered top- and bottom-line growth that is increasingly rare for a technology Company of our size and sets the stage for continued growth in 2016 and longer-term.

Our competency for operational excellence, sales execution and bringing innovative technology to market drove full-year results consistent with the growth and stability of the Sabre business model we've demonstrated over the past eight quarters. Revenue increased 13%, EBITDA grew 12%, EPS increased 17% and, importantly, free cash flow was 51% higher than 2014.

Our vertical SaaS software business, Airline and Hospitality Solutions, had an excellent year. Revenue increased 11% and EBITDA grew 14%. Segment revenue was $872 million, EBITDA of $324 million and EBITDA margins of 37.1%. Both hit new highs in 2015 and we expect further growth in 2016.

Passengers boarded increased 15% to 585 million and the Airline Solutions revenue increased 9% to $713 million. Hospitality Solutions revenues increased 21% to $159 million. When combined with Travel Network in 2015, we booked approximately 130 million hotel room nights. We expanded our geographic reach and customer base with the acquisition of Trust earlier in the first quarter.

At Travel Network we delivered global growth and increased share. Globally, our 2015 share increased a full point to 36.6%, with 80 basis points of growth in North America and 170 basis points of growth in EMEA.

Acquiring Abacus bolstered our position, giving us control of our destiny in the fastest-growing travel region in the world. With that integration well underway, we're now getting much deeper with our Asia-Pacific customers to ensure that we have the right solutions for the market and create opportunities to grow market share. In EMEA we continue to grow the business with much faster than market growth rates.

Overall, full-year Travel Network revenue and EBITDA increased 13% each while bookings were up 18% from 2014. And we're also proud that Travel Network began 2016 by being awarded the Travel Weekly Readers Choice Award for the best GDS for the seventh year in a row.

Now Rick will give more detail about the fourth quarter in a moment but at a high level, we finished a strong year and delivered a great setup for 2016. For the quarter, total Company revenue was $758 million, a 17% increase. EBITDA increased 15% to $229 million and earnings for the quarter increased 23% to $0.27 per share.

For Airline Solutions, 2015 was our second highest sales year ever when measured by total contract value. And the fourth quarter saw terrific balance of wins in both the AirCentre and AirVision product suites. These included several new agreements for Intelligence Exchange, Flight Plan Manager and our upcoming release of Crew Manager late this year. Our new crew solution will be the best in the industry. The diversity of our sales in commercial and operation areas was the best that we've seen in recent years and we expect that to continue into 2016.

In Travel Network, fourth-quarter revenue increased 22% and EBITDA 21% for the quarter. Bookings were up 33%. Of course, Asia-Pacific bookings were a significant portion of the growth but we also had 9% growth in North America and 14% growth in EMEA.

And while we're never completely satisfied, we're very pleased with the excellent performance in 2015, specifically regarding issues within our control: strategic execution, sales excellence, implementation and operation and financial execution and we fully delivered while continuing to innovate to benefit our customers.

The performance, on a micro basis, puts us in a terrific position as we step into 2016. And we've set our 2016 expectations with a macroeconomic backdrop that potentially has a bigger dose of volatility than we've had in the recent past. We've considered that in our plans and in our guidance.

A distinguishing characteristic of Sabre is our resilient, stable business model. We've talked about this since our IPO and we've demonstrated it in results across 2014 and 2015 in a world that has had its fair share of macroeconomic volatility. And while there might be shifts in the macroeconomic environment, we expect any impact to our business to be much more muted. And with that as context, we expect 2016 will be another good year for Sabre.

In 2016, we expect acceleration from 2015 revenue, EBITDA, earnings and, importantly, free cash flow. We'll benefit from our business model that features a balance of growth and stability, driven by long-term customer relationships, contracts, flat-fee pricing and dedicated customer care that results in renewal rates in the very high 90%s. And that all adds up to a resilient business that has great visibility into our future growth. And with that, I'll turn the call over to Rick for some additional commentary on the quarter and for the forward outlook.

Thanks, Tom. Airline and Hospitality Solutions revenue grew 8% for the quarter to $232 million. Contributing to the rise in revenue was the increase in our airline customers' passengers boarded and continued strong growth in Sabre Hospitality Solutions.

Revenue and EBITDA growth were muted by a tough comparison as we've previously discussed and expected. 177 million passengers were boarded using our SabreSonic reservation system, a 42% increase year over year, driven by solid growth in our customer base and the October SabreSonic implementation at American Airlines.

EBITDA increased 1% to $86 million, resulting in a Q4 EBITDA margin of 37% for the segment. Travel Network revenue increased 22% and EBITDA increased 21% in the quarter, supported by our overall bookings growth. Excluding the impact of consolidating Abacus, Travel Network revenue increased approximately 6% in the quarter.

Bookings increased 33% in the quarter. Growth was driven by the acquisition of Abacus as well as solid growth across our North America and Europe, Middle East, Africa business. Even when excluding the positive impact of the Abacus acquisition, global bookings increased a strong 8% overall in the quarter.

North American bookings grew 9% in the quarter, driven by solid travel trends and share gains within the OTAs. Our momentum continued in EMEA, where bookings, driven by new agency conversions and solid share gains, increased 14% in the quarter compared to low single-digits in the region overall. In Latin America, continuing weakness in Venezuela and Brazil led to a 4% decline in bookings year over year.

Moving to Sabre's overall income statement, the big 4Q drivers were the acquisition of Abacus and growth in our core Travel Network and Airline and Hospitality Solutions businesses. Quick recap of consolidated quarterly results: Revenue $758 million, an increase of 17% year on year. Gross profit totaled $336 million, a 20% improvement from the same period in 2014. And total EBITDA increased 15% to $229 million. EBITDA grew slower than revenue due primarily to the Abacus integration costs. Net income grew 27% to $76 million and Sabre consolidated earnings per share were $0.27 for the quarter, up 23% year over year.

Moving to the balance sheet and cash flow. We generated $56 million of quarter four free cash flow; it's more than double the same period last year. And for the full year we generated free cash flow of $243 million, an increase of 51% over 2014. Full-year free cash flow margin increased to 8.2% of revenue, up from 6.1% in 2014.

On CapEx, our Q4 total adjusted CapEx, that's the sum of GAAP CapEx and capitalized implementation costs, was $97 million. Capitalized implementation costs were $14 million of this amount.

Full-year adjusted CapEx totaled $350 million, including $63 million of capitalized implementation costs. This compares to $265 million in 2014. Cash implementation fees collected from customers, that's cash, totaled $93 million.

Year-end total net debt was $3.1 billion, reflecting strong free cash flow growth and the proceeds from the Travelocity sale, offset by the funds used for the Abacus acquisition and the share repurchase. Leverage declined for the year. We ended the year with a leverage ratio net debt to trailing 12-months EBITDA of 3.3 times compared to 3.5 times at the end of 2014.

Return on invested capital is an important measure of our long-term value creation and it's the lens through which we evaluate both internal and external investment opportunities. Sabre ROIC in 2015 was 9.3%. We have clear sight to increasing ROIC in the near to medium term. We will deploy increasing amounts of absolute capital in the projects we expect to deliver growing returns well in excess of our cost of capital.

In 2015, we divested businesses that were a drag on ROIC, while increasing our investment in areas that offer higher expected returns. We'll talk more about our performance and expectations related to ROIC at our upcoming 2016 Investor Day.

Now let's turn to the outlook for 2016. As you can see, we're expecting to build on 2015's solid financial results with a year of accelerated growth across the business. All of this is within the context that Tom articulated in his remarks. Our eyes are wide open to a more volatile macroeconomic environment and we will get the benefit of the stable, resilient Sabre business model that has shown its ability to better absorb shocks than many peer business models.

For the full year 2016, we expect total Company revenue growth to be in the mid-teens, or between $3.39 billion and $3.43 billion. In total, we expect Airline and Hospitality Solutions full-year revenue growth of 17% or more. Seasonally, we expect first-quarter revenue growth in the teens and a bit higher growth rate through the balance of the year.

We expect Airline and Hospitality Solutions full-year 2016 EBITDA margins to increase nearly 1 full point to 38%. We will see the continued benefit from the increasing scale of our platform in 2016.

We expect full-year SabreSonic passengers boarded growth of more than 30%, driven by continued solid travel trends, underpinned by capacity growth in North America and Europe, Middle East, Africa. 2016 growth will also be supported by the already completed American Airlines implementation and the upcoming Alitalia and airberlin implementations late in the year.

Hospitality Solutions has significant momentum and growth will benefit from the integration of Trust as well as the ongoing new implementations. Full-year Travel Network revenue is expected to increase between 13.5% and 14.5%, with anticipated growth of approximately 20% through the first half of the year and mid single-digit growth in the back half, reflecting the mid-year anniversary of the Abacus acquisition.

As previously communicated, margins will decline a bit due to the full-year impact of the Abacus acquisition. We expect Travel Network's 2016 EBITDA margins to be approximately 40%. We expect strong overall full-year bookings growth of approximately 15%.

The Abacus acquisition will continue to bolster growth through the first half of the year. We expect solid booking trends in North America and share gains in EMEA to continue to be the main drivers of the underlying business growth, with modest headwinds from the slowing Latin America and Asia-Pacific economies.

Turning back to consolidated Sabre, we expect mid-teens growth in total EBITDA, eclipsing the $1 billion milestone with between $1.08 billion and $1.1 billion of total EBITDA. Our capital markets work over the past year reduces our interest expense run rate to approximately $40 million per quarter. We also continue to improve our tax structure, resulting in an expected full-year effective tax rate of approximately 33% to 34%, a significant improvement over 2015's effective tax rate of approximately 37%.

We expect these below-the-line benefits will turn mid-teens EBITDA growth into full-year net income growth of around 30% at between $395 million and $415 million. We expect similar growth in EPS in a range of $1.40 to $1.47, with stronger year-over-year growth in the first half of the year compared to the back half.

So mid-teens revenue and EBITDA growth will drive net income and EPS growth of around 30%. We expect this growth, combined with modest growth in capital expenditures, to drive free cash flow that approaches $400 million, growth of over 60% and well on our way towards our stated goal of more than $500 million of free cash flow in 2017.

Reflecting this outlook and part of our commitment to shareholders, we have increased our targeted dividend payout ratio to 35% to 40% of net income, up from the previous range of 30% to 35% of net income. Accordingly, our expected quarterly dividend has increased from $0.09 per share to $0.13 per share.

Full-year GAAP CapEx is expected to be approximately $300 million, up modestly from 2015. We also expect capitalized implementation costs of approximately $95 million to support our ongoing implementation work. These will be partially offset by approximately $70 million of upfront customer implementation fees.

In summary, 2015 was a strong year that demonstrated the power of our business and financial model. We focused the business, invested in areas of strength, out-innovated our competitors and delivered the growth that we expected. We fully anticipate 2016 to be even better.

Tom, back to you.

Thanks, Rick.

In 2015 our business hit its stride, delivering meaningful growth and putting the pieces in place to accelerate that growth in 2016. While we have to be globally aware, we will not be distracted by the current macro volatility. We'll stay focused on delivering technology that helps our customers adapt to the changes in markets and in traveler expectations, and on driving long-term value for all of you.

I'd like to thank our employees around the world for their commitment to delivering value to our customers and shareholders and putting us in the excellent position that we find ourselves in as we enter 2016. I'd also like to thank our customers and shareholders for your continued confidence in us. We appreciate your trust and endeavor to continue to earn it every day.

With that, I'll turn it back over to the operator, Chris, to open the line for your questions.

(Operator Instructions) Brian Essex, Morgan Stanley.

Good morning, thank you for taking the question. Great quarter.

Rick, I had a question for you on -- I guess we'll focus on Hospitality and Airline Solutions. A lot going on there this year. You've got a substantial number of PBs with airberlin, Alitalia, LATAM all rolling on plus others through -- I guess the last we heard -- through 2017.

As these roll on and we think about -- we start to contemplate looking at Southwest rolling off at some point in 2017, how would you guide investors with regard to pricing, PB growth, and some of the impact to margins, particularly as you go through this American Airlines transition?

Brian, thanks. As you say, we had a lot going on this year. We executed it successfully. We've been working and that was evidenced by the American Airline implementation, as Tom referenced.

And we've been working on airberlin, Alitalia, some smaller ones, Air Serbia, Air Seychelles, Copa as well. And we have airberlin and Alitalia coming in late in this year, 2016. LATAM wouldn't be until 2017, so we won't see that impact until later.

As we've talked before, overall the deals that we've won from American through LATAM and those in between, in total as those would then come to bear, all else equal, we would see our fee structure to be about where it's been previously. Obviously American Airlines, being the biggest airline in the world, probably gets a little bit better than some of the smaller ones, you can be assured.

And there's a mix of what total solutions that they are taking with that. Some of the customers are taking just the base SabreSonic reservation system. Other customers are taking essentially the whole suite around the CSS solution, as well as many of our other SaaS products around operational and commercial suite in our AirCentre AirVision. So we see that playing out that way.

In between, of course, you have a little bit of pressure coming on with the American contract, given its finer pricing. But as you can see, we've gotten other kind of operational efficiencies and scale benefit in our platform, so that we are going from -- we hit a strong mark of a little over 37% EBITDA margin here last year. We're looking for 38% in 2016 even with this effect before bringing on and having a full year of big implementations like Alitalia, airberlin and LATAM for instance.

Contributing to that also is our work in hospitality, as you are aware. We've had a terrific start to the introduction of our SynXis Enterprise Platform solutions, both central reservation and property management with Wyndham. Those rollouts are going on throughout the year. So we are actually expending a lot before we get the full benefit of the 4,500 hotels that will come on by 2017 in property management and the full 7,500 hotels that will come on in central reservations again towards 2017.

So all in all, we see pricing to be rather stable across that period with those implementations and we get a little bit of scale from the business to show that we should be able to hit the very high 30%s. We are there this year, we expect, and we don't think that that's a limit, as we talked before, when we look further out.

Got it. And maybe if I could follow up real quick on -- yes?

Brian, just two things I mentioned earlier that I want to also want to be clear on the solutions growth. First, as I said, the balance of sales across the portfolio, so as we sold into the fourth quarter, very good pick-up on our AirCentre solutions, which was on the operational side and on the AirVision side, which is on the commercial side.

And really as I talk about these new solutions and the innovations we're bringing to market, the strategy there really is to put more critical services on top of the SabreSonic platform. And that means the pie gets bigger. We'll get more granular about that as the year goes on. But we think we can increase the size of the pie that we are selling into and take a bigger share of wallet from our current customers as we add these new solutions.

That's why I mentioned the solution count over time here. We're innovating into the trends around what airlines want to do with passengers. And airlines are willing to pay for those services because they want it -- they believe there's revenue uplift but they also can't deliver those services without great technology.

And as Rick said, we feel great about being able to do that and do all the organic development and bringing new solutions to market and still see a point of margin increase in 2016. We think we can keep driving margin up in the solutions business. So we feel really good about our ability to grow this business.

Maybe on the hospitality side, is there a thematic approach to where some of that upside has been? Whether it's -- we've really been surprised on the high end, frankly, particularly Wyndham, Four Seasons as we see those deals come on. Is there a thematic approach to CRS, PMS connection and giving them better visibility that's playing out there that maybe we didn't appreciate during the IPO?

Yes, Brian, I think in hospitality space some of that still needs to play out, but I've used the term before and I truly believe it and I hear from our customers, that they are looking for somebody to redefine the space and bring a platform of technology that they can use across their marketing and their operations.

We are very well-positioned to do that. That's what the Sabre Enterprise -- the SynXis Enterprise Platform is designed to do. But I think we have to get further along on the uptick.

Certainly our property management system business is relatively nascent. We have a lot of opportunity and upside there. We've been selling strongly into the central reservations market. And we really feel that we could walk into any central reservations deal and win, whether it's a single property or whether it's some of the largest chains in the world. So we're just continuing to have our way and add sales resource around the world.

We really like the Trust acquisition for that reason. We have -- it brings us into -- it gives us a little more strength and breadth in some geographies that we are not as strong in today. We've said in the hospitality business that at the beginning of 2015 where about 35% of our revenue was from ex-North America. Over time we believe that could flip to be 35% North American revenue and 65% ex-North America. We expect to be selling into that trend as well.

A lot of different levers but we are focused on pulling them all.

Great, thank you.

David Togut, Evercore ISI.

Thank you. Good morning, Rick and Tom.

Good morning, David.

Good to see the 44% dividend increase.

Could you dig into the -- just the macro assumptions built into the Travel Network a little bit more? I heard your thoughts in terms of solid North America share gains, share gains in EMEA. But could you give us a sense of the range of, let's say, airline bookings growth scenarios you've thought about for 2016? And to what extent is the Travel Network outlook tilted conservatively in this environment?

Yes, David, in 2016 we really see the macro shaping up along the lines of 2015, so let's recap. Good underlying growth in North America. You see that across both the solid growth across the corporate sector and leisure is doing fine. We have also increased our share with some of the faster growing OTAs in North America.

So we think the underlying macro there sets up in 2016 much like 2015, we powered through the very steep decline in the energy sector and the related drop-off in that area which is a pretty big one; didn't have any problem with that, really. And we think that's largely behind, so that relatively stabilized. We see that shaping up pretty well.

Then in Europe, Middle East, Africa we continue to -- going to benefit from share gain there, and we did that quite successfully in 2014 and 2015. We see 2016 shaping up as well. A little less market growth there than North America, as was the case in 2015, but our share continues to go.

In Latin America, again, that market contributed too. In fourth quarter you saw some of the overall market booking weaknesses. We reflected that, not any better, not any worse. We think that that market is going to continue to be a bit of a drag in 2016.

APAC a little more muted than previous years, but roughly still going to be able to provide us with growth there in the APAC market.

In terms of capacity enplanements, I think the assumptions are enplanements somewhere up in the 4% or a little bit more range for 2016, is our underlining. You've seen most of the major North American airlines report and talk about capacity growth that ranges from a percent or two to 4%, and then some of the faster-growing ones in actually double-digit capacity growth.

I saw some of the numbers out of Europe this morning as well with Lufthansa and others that are showing that the capacity growth for first half is pretty well set. And we think that that's going to be supportive of making sure that there's enough seats out there for traveler demand and having the right kind of price competition. So it sets up pretty well. Those are pretty well locked in for the first half, so that's the visibility we have.

And then on APAC, when should we expect to see potential share gains via the Abacus consolidation? Have you made all the changes that you'd like in the sales force and go-to-market?

Yes, this is Tom. We are well along on the integration and getting all the pieces in place on the sales force and the go-to-market. But look, Asia-Pac will be a little bit like Europe in that it's a much more fragmented market than what we have here in the -- the US really is unique with the size of some of the big players here where you can grab a big chunk of share from one player.

Asia-Pacific will be more of a market-focused share approach where we think in some markets we were under-weighted. I'd mentioned before that Abacus was under-weighted in India, as an example.

We think it's a steady push to get people on our platform and to increase the sales intensity. But I think it will take a little bit of time to get some pick-up, at least meaningful pick-up. We don't expect to lose ground; we expect to gain ground this year. But I don't think it's a big swing.

A final question on the Lufthansa GDS surcharge. Any thoughts on how this is impacting direct versus indirect bookings in EMEA?

Yes, it's a little muddy right now. I've said a few things before and I'll just reiterate them. From a strategy perspective, we've not seen an airline take a strategy that increased costs and introduced inefficiencies and also had them pricing competitive and have that win out over the long term.

That said, we believe a lot of the things that Lufthansa believes as far as the model needs to be enhanced, the business model needs to change. And when we talk about these solutions that we are putting into the market, we're talking to Lufthansa as well as other airlines about how they can use our technology to change the relationship with their customers, and that -- we can do that in a channel-agnostic way.

We hope they will find their way to see what we see, which is they get significant revenue premiums in the GDS channel. And if they are able to deepen the relationships with their customer, they should be able to get even more premium revenues from the GDS channel, as well as other channels.

We haven't seen any numbers that indicate that there's been a big shift. We haven't seen an impact to our bookings in any meaningful way across the board. We think that, as Rick has expressed in the last couple calls, that we believe that we are either picking up those bookings through either co-chair partners of Lufthansa or other airlines that overlap with Lufthansa. And we've not seen a decline of our overall bookings.

I think it continues to play out. But we are having conversations with Lufthansa about how we can help enable new business models and different relationships with their customers that they've said is core to the strategy.

Understood. Thank you very much.

Thanks, David.

Jim Schneider, Goldman Sachs.

Good morning. Thanks for taking my question. Congratulations on the strong results.

Tom, I was wondering if you could maybe address the pipeline of solutions -- potential customer wins over the next, say, 12 months to 18 months, and what you think we might be able to expect in terms of any large deals that are coming up for bid, and how you feel you're positioned, given some of the successful implementations you've had over the past couple quarters?

Yes. First, Jim, as we've said before, we feel like there's a significant pipeline out there of passengers boarded to go get that are projected to come up for bid. Some of those are more mature than others. And I'm not going to comment on any specific airline deals, but I would say that there are large deals and mid- and small-sized deals out there, as there typically are.

We feel that our performance has enhanced our position. Certainly the whole industry watched what happened at American Airlines. And I think that was a really good performance and we've seen these implementations at times take multiple years, as many as four years or five years with some of our competitors. And we've been pretty consistent in being able to drive these implementations inside of 36 months and often inside of 18 months.

So, we have a good track record of delivering what we say we are going to deliver on time. We think the solution is robust. And again, we continue to -- we don't believe anybody's keeping pace with us from an innovation perspective. So we feel really good about the sales pipeline and our ability to sell in.

Again, we are very focused on increasing the size of the pie, specifically in the SabreSonic area. So taking the opportunity to sell into new services in SabreSonic, both at existing customers as well as new customers.

The pipeline that we've been talking about for the last -- really the last 12 months, hasn't really been chipped away at all that much. We've announced a few wins. There's been a few small deals out there but there's still a nice big pipeline of business that we expect to be out for RFP, and we will be one of the players at the table.

That's helpful. Thanks. Just a follow-up question maybe for Rick on the margins. You've talked about the one full point of solutions margin expansion for the year. Can you maybe comment on the profile of that?

Are we essentially going to see that improve over the course of the year as you start to get synergies from Trust and any other cost savings and as volumes pick up? And how should we think about that on a run rate basis exiting the year versus full year?

Yes, so as we said, we're moving from about 37.1% to about 38% for the year. This year we don't see anything real quirky about the quarters as we move through that, so you should see a pretty smooth progression there, Jim. Nothing but a dull increase.

It's good to hear. Thanks so much.

Ashish Sabadra, Deutsche Bank.

Good results and solid guidance. Just quickly on the air Travel Network, you've seen some pretty solid momentum there. You talked about taking a more conservative view but is still guiding to a pretty good 6% bookings growth which is very encouraging. You talked about the capacity growth which we see across the US and EMEA airlines which is, again, very encouraging.

I was just wondering if you could maybe talk about LATAM. That's been a slight drag but you've obviously been able to grow with that drag.

As we think about the Zika virus, have you seen any show -- moderation in volume because of that? Or based on your experience looking at Ebola or other such concerns, do you anticipate any impact to the LATAM volume? Thanks.

I think -- let's start with based on experience, I mean whether -- we certainly do deep dives into impacts on things like SARS and Ebola. Some of these events go back now almost a decade, some of the pandemic events that we've tracked. And generally we see a volume shift that's very manageable and a relatively swift recovery once things are under control and the public is educated on the real risks.

And we hope that it's the same with Zika. I think we are still a little bit early but I think early results are encouraging. I think there was a little bit of panic, let's call it a week or 10 days ago, when some news first broke. But I think it's calmed down quite a bit and we haven't seen any meaningful impact on volumes at this time. We haven't heard any of our airline customers talking about meaningful declines in volumes.

That's good, that's great. Just quickly on the margins for the Travel Network segment.

How should we think -- we understand there's some headwinds right now from the Abacus acquisition? But as you start gaining the cost synergies on the Abacus acquisition, how should we think about the margins going forward?

Well again, Ashish, as we said in 2016, we will feel the impact of that one-time step down that I talked about at the merger from approximately 42% to 40%. And that's where we will traverse in 2016. We really need the year to get the full synergies in place in 2016 before we get the full benefit of those in 2017.

As Tom said, the integration is going well. We are well on our way but we will need time to get those fully in.

Right now, I see it as all else equal at this 40% level. We will implement the synergies that we identified. We will do that on time. And then we will have to see what we might do from there.

That sounds great. In substance, Rick, the way to think about it is the margins will trough this year and then as the synergies come in we should see potential upside going forward? Is that the right way to think about it? I understand you said you (multiple speakers)

I think from Abacus integration itself, I wouldn't say that that would be the driver. We will just have to look across all of the business and we will give you an update on that as we update our medium-term outlook. What we are looking for is stable margins like we've been driving the business in Travel Network. And stable is 40% now.

We get good top-line growth on that and we continue to have great free cash flow conversion. So you can see how that really contributes all the way down the P&L and doesn't require any kind of material margin expansion to make the model work in a leveraged, positive leveraged, way.

Absolutely. It's very encouraging to see that free cash flow guidance approaching $400 million. That's very positive.

Just quickly on -- last question on the corporate expense. That was $65 million compared to $75 million in the third quarter. How should we think about the quarterly cadence going forward? Is the fourth quarter a good approximation going forward?

Yes, we had a bit more in third quarter for the reasons we had talked about, primarily professional services fees and secondary offering fees. Some of that was around the security one-time that we had in third quarter. Fourth quarter is a more indicative run rate.

Okay, that's great. And again, solid guidance. Congrats.

Thanks.

Thanks.

Abhey Lamba, Mizuho Securities.

Thanks. Congrats again, really good performance there.

As you look at your guidance, the macro situation is really evolving rapidly. What factors, external factors, would you be paying attention to that can cause deviation in your performance versus guidance?

Yes, so Abhey, in the macro, was trying to shape in terms of my remarks is we've got our eyes wide open to that. And obviously there's more macroeconomic volatility today as we sit here than there was in, say, December, what people expected.

But it's important to understand that our plan and our guidance, as Tom said, incorporates that view; it's not an old static view, it's a current view. And we've got a business model that shows that it's able to absorb some of those things with the other positive effects that we have around the world and the region.

So again, solid set up under the underlying macro for North America. We will continue to perform well there on a competitive basis. Similar, solid but a little slower growth, in Europe, Middle East, Africa but we are getting gains there.

And we think we've seen, even as we exited the year, significant decline. And you've seen that across airline results in Latin America. We've expected that Latin America is not going to get better in 2016.

That's incorporated in our outlook. As well as there's been a somewhat softening that was apparent in the fourth quarter in APAC overall, related to a little bit of the slowdown in China and some of the collateral impact of that.

So we've got those fully in our sights. We've got it built into our guidance and we think we can play through it if it plays out that way.

Yes, and I think, Abhey, the other thing to be focused on is, as I mentioned in my beginning remarks, we just won't see the types of swings that the macro environment might have in our business. It's typically both on the upside and the downside we are seeing relatively moderate swings.

Part of that is, and I think I feel even more confident in this environment, where it is very effective to fly airplanes in an environment when you have under $50 a barrel oil. And when you're down at $30 a barrel there's very little incentive, even in a down economy, to pull capacity out of the market.

You're going to price your way into some demand and pricing into demand is our friend. We get a flat fee on the booking and we're happy when there is -- we certainly want to help the airline industry but we are happy when airline seats are on sale.

In this kind of environment we just don't think we're going to see the dramatic swings that you might see in other sectors of the economy. And as Rick said, we've been eyes wide open and we bake a certain level of what we believe is going on based on the most current data we have into this guidance that we've provided today.

That's very helpful, Tom, really puts things in perspective here. Just a last question on the solutions business.

Can you [give us] impact of the Trust acquisition? Does it offer you some new capabilities that you can monetize within your existing installed base? What type of revenue synergies are possible over time? That's it for me, thanks.

In terms of Trust new capabilities.

Yes, I think, as I mentioned when we acquired Trust, what we like most there is, one, it was a very well-managed business. So we pick up people that we think are really terrific and will plug right into our team. And we like the geographic footprint.

I think from a -- they do have some solutions that we can bring to our customers and conversely we have a broader set of capabilities that we can bring to their customers. So we think there's a share of wallet play in both directions. There's revenue synergies in both directions.

The teams -- the early plan here was to work to figure out how quickly we can get at some of those. But I think that's really -- the opportunity is to cross sell solutions into the two customer bases. We've both been pretty effective at broadening our portfolios over time and pushing solutions into our customers. So there's a few new capabilities on their side but there's certainly upside on things that we could bring to their customer base as well.

And, Abhey, this is Rick. On that regard as we said at the acquisition, what we expected we felt that Trust was a very well-run Company, both operationally and financially. They've got great sales excellence.

And we are seeing all of that confirmed as we've brought the Companies together. So we think that just gives a great critical mass into our organization that becomes ever more powerful.

Thank you.

John King, Bank of America.

Good morning, this is [Ted Kentonbaugh] for John King. I have one question on the cash flow.

So you previously set the target for $500 million of free cash flow in 2017. Now, this was set a while back and given the strength of the operating performance since then, I was wondering whether you're planning to update this forecast.

And related to that, is there anything we should take into account which might offset some of the momentum when we think about where we end up in 2017? Thanks.

Thanks, Ted. We feel real good about the free cash flow trajectory we've been on and we are hitting all our marks this year.

In terms of what we delivered in 2015 and with the approaching $400 million in 2016, we are right on schedule. And as I said, I re-confirmed our expectation of a target of reaching $500 million or more in 2017, so all intact there.

And again, at our Investor Day later in the spring, we will give update across the whole financial model and the shape of that in terms of medium-term which we need to push out now. I started the medium term in 2014 saying here we've got pretty good visibility through 2017.

We will give you an update on that but everything is intact in terms of the free cash flow generation. That's reflected by our increase in the dividend, one, and again, reiteration that our expectations and guidance for 2016 specifically are on track for what I laid out last April at the Investor Day. And the $500 million-plus in 2017 looks intact.

Thanks very much.

Jason Kupferberg of Jefferies.

Good morning. This is Ryan Cary calling in for Jason. I just have another quick one on the Trust business. And I apologize if I missed it earlier.

But are you still expecting approximately $40 million benefit to result in 2016 from the acquisition? And should we think of the benefit as pretty evenly spread across 2016?

Yes, $40 million is the revenue and pretty evenly spread out.

Okay, perfect. And it's nice to see the launch of the NDC technology on American Airlines; I think it was just announced. I assume this didn't have any impact in the fourth quarter.

But going forward I was hoping you could speak to the potential for the rollout at other carriers. I'm assuming this is likely a higher-yielding reservation for Sabre, so should we expect, let's say, over the next 12 months to 18 months, we could see a tick up in average booking fees?

I think -- well, first let's talk about the technology side and then I'll circle back on the fee part of the question.

On the technology side, we've said this for a while, IATA standards don't drive innovation, they never have and they never will. So NDC is an idea and technology providers like us are going to have to make that idea real and bring it to life for customers and be able to sell real technology that can provide new capabilities.

There's been a lot of puffery, I would say, around the concept of NDC. But NDC is a white paper and, again, companies like ours need to bring real technology to market. That's what we did at American Airlines.

I think there will be some of the technology will be NDC-compliant. I actually think other standards will evolve and do a better job of what's been knocked out with the IATA standard over time.

The onus is on us and some of our competitors to make that stuff happen. We feel really good about being first to market with it.

As far as booking fees, we've said historically and we will say again as we go into 2016, that we believe booking fees will trend up slightly. I do think that over time the more services that we provide to airline customers, the more value that we can provide and the more that we can tie out the notion that we are helping them execute their strategy in driving new revenues, over time that might be an opportunity. Today we view it as not a huge revenue producer today in 2016.

We don't think it will be for us, we don't think it will be for any of our competitors. Partly because these are pretty nascent services and it's going to take some time to really understand where the value is being driven.

Great. Thanks for taking my question.

Bhavan Suri, William Blair.

Hey, guys, thanks for taking my question. To first start off on -- everyone's covered the macro but have you seen any pushback in CapEx spending from the airline or hotel customers at all yet?

No. In fact I would say that airlines in particular are investing in technology at a fairly aggressive rate. They are doing that for two reasons.

One, because they have strategies that cannot be executed unless they invest in technology, that's one reason. And secondly, they are obviously flush with cash.

So we like this environment from a selling perspective. We see airlines making bets on systems that are a little longer-term -- potential for longer-term returns. Because they are really are trying to put the underpinnings of technology in place to be able to execute their future strategies.

And then I talked about our crew solution in my remarks. The operational areas, whether it's re-accommodation or crew, are areas that need a refresh from an investment perspective. I also think this kind of cash-rich cycle in the airline industry will allow that refresh to happen.

Got it. Turning to Europe, obviously nice share gains there. As you look at the competitors and where you've taken share from, did pricing have any impact?

And then a follow-up, as Ryanair obviously tried to buy Aer Lingus for a while. It didn't work out and everything else. But do you worry about airline consolidation there? Because obviously in the US we've seen that and that's had negative impact overall, or pressured at least, the GDS a little bit.

Do you worry about that? Do you think that's a ways away? Or do you think that's something that could be more imminent from a consolidation perspective on the continent?

Some of the consolidations played out. The Air France group and IAC really are consolidations. They are not brand consolidations because there's a whole bunch of regulatory issues in the way of that. But there's operational consolidation, certainly.

And so I think we've seen much of it. It's not to say that there can't be more -- but we've seen, again, seen airlines continue to try to get leverage through consolidation. And you have mixed groups like with the IAC group where you have a low-cost carrier and a group with a full-service carrier.

It's not always logical how consolidations happen in Europe. I do think most of it is behind us but there's always potential for more deals.

Our wins in Europe have not been -- price is always part of the discussion -- but they've not been something price-driven. Our share gains have been a combination of putting some focus into markets where we frankly hadn't competed before. So we've opened a number of new markets. We've done a very good job leveraging our strength in the online travel market to pick up some business in the regional online markets across Europe.

And we have the best platform in the world for multi-nationals and we continue to see primarily North American multi-nationals globalize travel programs and bring Sabre with them wherever they go. That leads to some international growth and some benefit for us. So I think that's where we want business and not really been price-driven.

Got it. One last one on the hospitality side. You had the micros take out -- which happened a while back -- and you guys did a nice job taking share there. And then your other competitor in Europe has been talking about developing for that group at hotel reservation property management system on-prem type of thing.

Any update on the competitive environment? Any of those guys starting to change how they come to market? Starting to think about approaching it as a multi-trend SaaS model that you have or becoming competitive in pricing? Anything new on that environment?

I feel very good about how we are positioned in go-to-market versus our competitors have had some changes. But I don't know that those changes have been changes that have benefited the customers.

So we feel very good about how we are going to market. We think we are having unique conversations with hoteliers in all segments. And we really like that business and think we can continue to drive wins there.

We have work to do, as I said earlier, to build out some capabilities in areas like property management where that's a big market. And we're not big in it today. We are nascent in it and we think there's a lot of upside.

Great, that's helpful. Thanks, guys, thanks for taking my questions.

Thank you.

Jed Kelly, Oppenheimer.

Great, thanks for taking my question. Two things.

One, 4Q Travel Network pricing per passenger was down year-to-year. Is there any particular item you can highlight around the decline?

And then can you further touch on what's driving the share gains at the OTAs? Is there anything around Expedia enhancing its airline offerings to call out? Thank you.

On that blip, it's really related to Abacus and bringing that on, Jed, nothing new there unexpected, as we said. And then in terms of -- Tom?

I think on the OTA side, some of the larger-scale OTAs -- and we've talked about this before -- we are a back-end technology provider. They want to spend their money on building out technology that goes out to the customer. And I think the OTAs that have significant scale are starting to be able to invest at levels that are different from anybody else in the industry, including the direct channels. They have a model that's giving them more confidence about their ability to convert multiple products into a single customer.

You could listen to how they talk about their business, but I think it has a lot to do with the scale and the level of investment and the knowledge that they are gaining as far as customer insights in the digital marketing world. We've seen growth rates from some OTAs, not all, that are far outstripping the market.

Thank you.

Matthew Broome, Cowen and Company.

Thanks for taking my call. On OTAs and actually most of the off-line agents, what are you seeing right now on the pricing front?

You mean from an agency incentive perspective?

Yes, exactly right, yes, exactly.

We've seen some drift up in incentives where there's been consolidation. The comment that I just made suggests some of the biggest players are growing faster than the market, so you have unit price growth because of that.

But from a contract-over-contract perspective, I think in aggregate we see incentives relatively flat -- in aggregate. And that's the same story we've been telling for the last several years.

Okay, perfect, thanks. And lastly, how are you looking at additional M&A at this stage? Or are you more along the lines of you've got enough on your plate right now?

We have plenty on our plate but we've said before that, particularly in the solutions space, if we can add acquisitions that will provide new value to our customers or give us access to new customers that we don't have today, that we are an active acquirer. We refer to them as tuck-ins, they've generally been -- Trust was on the larger side of the tuck in. They've been as small as a couple million dollars. But we are very active in trying to understand what's out there.

Again, we believe that we have a platform that if we can plug in new services to it, we can increase share of wallet of our customers. We can develop globally, deliver globally and sell globally and there's a lot of boutiques out there that just can't get to those bigger markets without being acquired. So we think there's upside for the Companies we are acquiring and their employees, as well as for us and our customers.

And Matthew, we've got the capital structure and flexibility and strength there to handle those types of acquisitions Tom just reiterated. So thanks for that.

Right. Thanks very much.

And with no further questions, I'd like to turn the call back over to Mr. Tom Klein for closing remarks. Mr. Klein?

Thank you very much. Again, thanks for your confidence in Sabre and for joining us today. We look forward to a great 2016 and we look forward to seeing you again.

As Rick mentioned, we plan on getting out for Investor Day here later this year and I hope that many of you can join us face to face for that. Thank you very much.

This does conclude today's presentation. Thank you all for your participation.