Sabre Corp (SABR) 2016 Q2 法說會逐字稿

Good morning and welcome to the Sabre second-quarter 2016 earnings conference call. Please note that today's call is being recorded and is also being broadcast live over the internet on the Sabre corporate website. This broadcast is the property of Sabre. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of the Company is strictly prohibited.

I will now turn the call over to the Senior Vice President of Investor Relations, Mr. Barry Sievert. Please go ahead, sir.

Thank you, Hannah, and good morning, everyone. Thanks for joining us for our second-quarter 2016 earnings call. This morning we issued an earnings press release which is available on our website at investors.sabre.com.

The SEC recently issued additional guidance on the use of non-GAAP financial measures. As a result, you will notice a few changes to the presentation in our press release today including the presentation of our guidance. The slide presentation which accompanies today's prepared remarks is also available during the call on the Sabre IR webpage. A replay of today's, call along with the slide presentation will be available on our website beginning this afternoon.

Throughout today's call we will be presenting certain non-GAAP financial measures which have been adjusted to exclude expenses and other gains or losses related to restructurings, litigation and tax matters and certain other items. All references during today's call to EBITDA, operating income, 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 today contain forward-looking statements. These statements include, among others, disclosures of our guidance, including revenue, EBITDA, net income, cash flow, interest expense, tax rate, capital expenditures and earnings, our expected segment results, the effects of new or renewed agreements, products, implementations and acquisitions, implementations, 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 first-quarter 2016 Form 10-Q and our 2015 Form 10-K.

Participating with me on today's call are: Tom Klein, our President and Chief Executive Officer; Rick Simonson, our EVP 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. 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, and good morning, everyone. Our second-quarter results built on our growing and consistent track record of solid execution. While the macro environment has offered very little upside, our results demonstrate our ability to grow, even in a relatively stagnant environment. It's also a confirmation of the criticality of our systems, our services and our strategy to continue to add new products and services to our airlines and hospitality portfolio while we continue to expand the geographic penetration in all of our businesses.

Our team is laser-focused on the things we control, launching new and innovative products, staying far ahead of our competitors in areas like mobile and cloud, taking care of our customers and finding new ones and ensuring that we have an advantageous cost structure. While we're never are satisfied, we are very pleased with our first-half results and we expect a solid remainder of 2016.

Now looking at the second-quarter results, overall growth rates were very similar to what we reported in the first quarter. Total second-quarter revenue increased 20%. Adjusted EBITDA grew 19% and adjusted earnings per share grew 37% from the prior year. And overall we posted solid growth. In airline solutions, excellent customer growth, new solution adoption by current customers and new customer implementations all contributed in the quarter.

One of our key drivers is our strategy to continue to broaden our offerings. And with some innovations, we are the only ones doing what we do. We have previously discussed how intelligence exchange in our retail and merchandising solutions are helping to bolster growth. We continue to introduce new innovations that will further enhance airlines' ability to get deeper insight-sensitive data and create actionable events tailored to specific customers.

We recently debuted four newer upgrade solutions, digital experience, customer and commercial analytics, revenue optimizer and crew manager. Sales interest around all four has been strong. And our crew manager solution has been particularly strong, with pent-up demand for richer capabilities. We've hit the target and have the best crew solution in the market today. We had multiple sales in the second quarter and we have a very deep pipeline of opportunities.

I thought I'd take a few minutes on this call to dig deeper into my comments about our innovation and criticality of our solutions. To do so, I'm going to focus on crew management which is one of the most critical and complex areas of an airline. Fuel and labor are the largest expenses for most airlines, so it's essential that airlines plan, schedule and manage their crew as efficiently as possible.

Regulatory requirements, union provisions, quality-of-life objectives and airline policies all impact crew management optimization. Add to this the importance of rapid recovery from irregular operations due to congestion or weather, and you can get a sense of how critical a crew solution can be to overall airline operational efficiency. Avoidance of both missed crew connections and lack of reserve for backup crew members are two of the largest controllable sources of delays and cancellations for an airline.

Our new solution provides a world-class user experience for crew planners and crew members alike. Sabre's crew product is very flexible and has a rich mobile capability to serve the airlines' remote and mobile workforce, who are now enabled to make self-service adjustments while receiving real-time alerts.

Our crew recovery capability leap-frogged the legacy systems being used across the industry. For example, during a recent storm that caused hundreds of flight cancellations, one of our customers used this technology to determine a crew recovery four times faster than current industry benchmarks, saving almost a half-day of operational chaos and putting the airline on the path to recovery. With the optimized solution produced by our crew recovery system, it took about two days for the airline to return to its steady-state plan from an almost complete shutdown of aircraft movement. That's three times more efficient than current industry benchmarks.

Crew management is a critical component of every airline and one of the biggest revenue contributors within our AirCentre suite. We're already the leader in crew management software which has an addressable market approaching $250 million and growing.

It's clear to us that there's pent-up demand for this new best-of-class solution. We've already signed multiple deals and we have a rich pipeline of new sales. You should expect a deal flow announcements in the back half of the year, a great example of Sabre setting new standards, out-innovating the industry and working with leading airline customers to create the next industry standard for a big important part of the market.

In hospitality solutions we also realized strong growth. Hoteliers of all sizes continue to be attracted to our growing portfolio of innovative solutions and the great service our team provides. That customer excitement suggests a long runway for continued growth.

As we work to implement Wyndham, we have nearly 1,600 properties running on our SynXis property management platform. And we've completed the migration of a few Wyndham brands to SynXis central reservation platform with very good results. I personally appreciated having key peers at Wyndham speak at our Investor Day about the decision process that led Wyndham to Sabre and some of the positive results they've already experienced from our solutions.

And we've seen very good sales and implementation activity across the hospitality market. We continue to build on our gap with competitors with new brands taking advantage of more and more of our hospitality solutions.

In travel network overall booking growth was 24% and our now wholly-owned Asia-Pacific region was a big contributor to growth. But we did see some growth in every region of the world. Despite a tough year-over-year comparison, we delivered modest growth in both North American and EMEA. Latin America bookings growth turned positive this quarter which is very good sign.

In Asia-Pacific the end of the second quarter marks the anniversary of our full ownership in the region. Our operations are largely integrated and sales progress has been very strong. Second-quarter like-for-like A-Pac bookings growth were 9%. We are extremely pleased with our progress in Asia-Pacific.

Importantly, our confidence in future bookings growth and continued share gains has been solidified with several recent wins and renewals of our largest travel agency customers and will have a meaningful impact over the coming years. We recently completed new contracts with some of our biggest customers, including Expedia, American Express, BCD and Flight Center, among others. Our approach on these deals is to look for ways to add new value to our customers and find ways to refresh the relationship while growing our base business.

The new Sabre Red Workspace is having a big impact on our agency and supplier conversations. We expect it to create significant advantage going forward. It's the best agency platform available with differentiating capabilities for airlines and hoteliers to market and sell their products the way that they want.

As you know, ancillary revenue has been the greatest source of revenue growth for airlines over the last several years, driving approximately $50 billion or so of industry revenue last year. The large majority of this revenue has been driven through the airline direct channel. As the airlines look for new opportunities to drive ancillary revenue, we expect the next leg of growth will be driven through the GDS and Sabre's position will lead the way.

Our technology is ready and we believe the commercial willingness is there. In fact, all of the North American majors that offer paid seats are committed to distributing them, as well as other ancillaries, through the Sabre marketplace. These airlines recognize that meaningful revenue can be generated through our network of travel agents. For agencies, the new Sabre Red platform brings important new capabilities to enhance customer service and optimize their business, including building on our industry-leading hotel room night [lines] through the GDS.

We previewed the platform in June at our largest customer event of the year and it's generating tremendous positive feedback from agencies. Sabre Red platform is used by brick-and-mortar sellers who travel and many of the same shopping services, data and analytics and our supplier services extend our leading capabilities on the online travel side of the market that largely consumes our web services offering enabled their business. These new capabilities will help drive the next leg of growth and we expect will extend the record of results we've built since our 2014 IPO.

With that I'll turn the call over to Rick for some additional commentary on the quarter and for the forward outlook. Rick?

Thanks, Tom. Let me start with a summary of where we are to date and then provide the details and our reiteration of guidance. Our second-quarter results were strong and they reflect a continued strength of our business and the stability of our financial model. For example, performance has been robust, our momentum's intact and we expect solid results for the remainder of the year.

Airline and hospitality solutions continued to track towards more than $1 billion in revenue this year. For the quarter revenue grew 16% to $252 million. Contributing to the rise in revenue was an increase in our SabreSonic passengers boarded, growth across our AirVision commercial and AirCentre operational solutions and strong growth in hospitality solutions.

Airline and hospitality solutions EBITDA increased 14% to $92 million, resulting in Q2 EBITDA margin of 36.5% for the segment. 200 million passengers were boarded using our SabreSonic reservation system, a 43% increase year over year. New implementations contributed the majority of the increase, however passengers boarded growth on a consistent carrier basis was 6% in the quarter.

Turning to travel network, revenue increased 21% to $598 million, driven by impact of now wholly-owned Asia-Pacific region and bookings growth across all other regions. EBITDA increased 22% to $252 million in the quarter. Excluding the impact of consolidating Asia-Pacific, travel network saw strong organic revenue growth of approximately 6% in the quarter.

Travel network's revenue growth was supported by a bookings increase of 24% quarter, and again, excluding Asia-Pacific global bookings growth was 2%. This is on top of a challenging comparison of 9% growth in the year-ago quarter. On a regional basis, North American bookings increased 1.3% in the quarter driven by good growth in leisure channels while corporate travel remained more muted.

In Europe Middle East Africa our long-term trajectory of share gains continues with normal quarterly ebbs and flows. We anniversaried some meaningful customer conversions early in the quarter which led to 3.2% bookings growth in the region, faster than the underlying market growth but tempered a bit compared to our terrific Q1 performance. We expect our out-performance in EMEA to widen over the balance of the year as new conversions in the pipeline are completed in the coming months.

Latin America bookings turned mildly positive in the quarter, increasing 1.5% including a return to modest growth in Venezuela and Brazil. Globally, our share of GDS bookings in the quarter was roughly flat at 36.7%. Year to date our worldwide share is nearly a full point higher.

Moving to Sabre's overall income statement, strong growth across the business resulted in a nice rhythm to the quarterly numbers, consistent with Q1. Revenue of $845, an increase of 20% year on year. Adjusted gross profit of $373 million, a 19% improvement from the same period in 2015. Total adjusted EBITDA increased 19% to $271 million. Adjusted operating income of $193 million was 19% higher than year-ago results.

Interest expense declined by $5 million as a result of our benefits of recent financing activities. And our effective tax rate was lower at 33%, reflecting the favorable impact of our now wholly-owned Asia-Pacific business and our ongoing tax work. All of this resulted in adjusted net income growth of 37% to $104 million and Sabre consolidated earnings per share of $0.37, up 37% year over year.

Moving to the balance sheet and cash flow. Quarter-end total net debt was $3.2 billion, a modest increase from year end, reflecting the acquisition of Trust early in the first quarter for approximately $160 million. However, leverage decreased with net debt to trailing 12 months EBITDA of 3.1 times.

Recently on July 18 we announced the closing of a $1 billion pro rata credit facility. Our recent credit ratings upgrades allowed us to access this attractive market. The facility includes a new $400 million revolver that replaced our previous $405 million revolving credit facility and a new $600 million term loan A that was used to pay down $470 million of existing and outstanding revolver loans and term loan B loans, with additional cash [added] to the balance sheet to provide incremental liquidity. Following these actions our pro forma blended cost of debt now sits at 4.3%, slop-adjusted it's 4.4%.

For the quarter we generated $34 million of free cash flow. Year to date we generated $99 million of free cash flow. Q2 total adjusted CapEx, which is the sum of GAAP CapEx and capitalized implementation costs, was $112 million. Capitalized implementation costs were $23 million of this amount.

Let's turn to the outlook for 2016, as we have half the year in the books. We are pleased with our first-half performance. We continue to demonstrate the power of the Sabre growth model with strong year-on-year and quarter-on-quarter growth, both organically and enhanced by selective M&A. We've accomplished that in a macro environment that hasn't offered any upside as we've moved through the year and over the past month or so, has had increased volatility, particularly in the EMEA region.

With this in mind, we continue to expect to report full-year income statement measures within our initial guidance range. All considered, we now expect revenue to be towards the lower end of our guidance range of $3.39 billion and $3.43 billion, or closer to 14.5%. We expect adjusted EBITDA, net income and EPS to be near the midpoint as we manage the business to deliver against our objectives.

In solutions we continue to expect full-year revenue growth of more than 17%, with strong top-line growth in both Q3 and Q4. We expect flow-through to airline and hospitality solutions EBITDA will be much stronger in Q4 than Q3, reflecting the timing of new implementations in both hospitality and airline solutions expected over the balance of the year. And the anniversary of the expiration of the service contract we previously discussed at the beginning of Q4 last year.

In Travel Network, with the anniversary of the acquisition of our Asia-Pacific business on July 1, revenue and bookings growth over the balance of the year will return to normalized growth rates, reflecting our global footprint. Incremental economic and geo-political uncertainty have dampened industry-wide bookings growth somewhat, leading us to expect full-year travel network bookings growth to be about 1% less than our initial estimates. We expect the increase in full-year travel network revenue to be around 13.5%, with stronger growth in Q4 versus Q3 reflecting the benefit of upcoming new agency conversions.

We previously communicated expectations for full-year travel network EBITDA margins to be approximately 40%. Given our strong year-to-date performance, and outlook for the balance of the year, we now expect to do a bit better than that.

Turning back to consolidated Sabre, we continue to expect full-year total EBITDA to be towards the midpoint of our guidance range of $1.08 billion and $1.1 billion. Interest expense should be approximately $40 million per quarter. And our full-year effective tax rate is expected to be approximately 33% to 34%.

We continue to expect full-year net income and EPS growth of around 30%. We expect full-year results to be near the midpoint of our guidance for between $395 million and $415 million of net income and EPS of $1.40 to $1.47.

Turning to cash flow, we have made the decision to accelerate certain investments this year to capture some attractive commercial opportunities which will result in an increase in capital expenditure. A meaningful percentage of this investment is directly tied to strong sales activity in travel network that has resulted in a number of new agency wins and renewals. We expect these agreements to drive bookings and sustainable share gains over the coming years, resulting in an expected strong return on invested capital. These are the types of investment decisions that are easy to make with expected clear and strong payback.

As a result, we are adjusting our expectations for 2016 free cash flow to approaching $375 million, with much of the incremental cash usage absorbed in Q2. We expect Q3 free cash flow generation to be relatively consistent with our average across the first half of 2016 and expect a significant ramp up in Q4 this year.

So overall, we continue to have strong revenue, earnings and cash flow growth in a global economic and travel environment which I'd say isn't doing us or any others any favors. Our expectation of continued solid performance is a reflection of our business model and our ability to minimize volatility within our results, while external volatility has increased somewhat.

In summary, our second-quarter results reflect the continued strength of the business and stability of the business model. First-half performance has been strong and with continued momentum across the business. We expect solid results for the remainder of the year.

Back to you, Tom.

Thank you, Rick. Innovation at scale and a track record of value delivery to our customers continues to drive our growth. Our employees are innovating at a pace our customers appreciate and that our competitors are finding hard to match. This is innovation results in industry-leading new solutions like the new Sabre Red Workspace, crew manager and intelligence exchange that continue to press our advantage in the market.

And with that, I'll ask Hannah to open the call for your questions. Hannah?

(Operator Instructions)

Brian Essex, Morgan Stanley.

Good morning and thank you for taking the question. Tom, I was wondering if I could start off by taking a look at the guidance and the commentary that you made on EMEA. If you could elaborate a little bit more in terms of what specifically are you seeing in that region that causes you to be more cautious?

Obviously we're well aware of what's going on in the macro and we've heard some other vendors talk about shifting travel. Maybe if you can break it down to country-specific where you're seeing the movement and what's giving you the incremental pause throughout the remainder of year. And then I have a follow-up.

Brian, it's a little harder to talk about it on a country-specific level. I think our view is that this confluence of issues that have happened, whether it's been some of this spate of terrorist issues and then an overall softening of demand. We've talked about corporate demand globally being a little bit soft.

I think there's a confidence issue that's driving some pullback in capacity in some markets, as we've seen, and a shifting of capacity. So in some cases domestic capacity being decreased like here in the US, and a little bit of increase on the International side. So we see capacity down a bit.

And Europe coming into the year has been soft we've outperformed Europe in a significant way. And as Rick said, we had a quarter here this quarter where we anniversaried some big wins that we had in Europe, or really across EMEA, in 2014 and early 2015 that got implemented.

And now we have a little bit of backlog in implementation, new travel agencies there, and we expect a reacceleration. So we still are outperforming the market by a meaningful amount. But we're not seeing the double-digit growth that we saw some quarters here over the last several quarters where we've seen big EMEA growth.

I think there is a bit of softening in the macro. But we also had this impact of anniversarying some deals that we had. And we expect to, again, start to implement some new business that will pick that back up.

Brian, this is Rick. For us EMEA is on track and we continued to outperform the market. We'll continue to outperform the market, we expect, through the rest of the year. So for us it still is a growth market, even given some of these things that have happened to shake confidence a little bit or move travel around the region over the last six weeks or so.

Got it. And on that, sticking with travel network, certainly hearing about the wins in the market. That's a great thing to see, so congratulations on that.

How does the investment driving those wins trickle in to the following years? Any adjustment to next year's -- historically you've given a couple of years now of high visibility into free cash flow growth. Is this primarily a 2016 event or should we anticipate this investment to run into next year or perhaps maybe even -- (multiple speakers)

On the new wins that we talked about that we're investing in now, which is a great return and sustained market share, it's primarily 2016 impact, Brian. Again, we expect our medium-term outlook for free cash flow is remained constant, and what we're doing, we're investing with wins. It gives us sustainable market share growth; we'll have a great return. Again, it further cements that foundation of global leadership in the travel network business.

Let me -- first of all, Brian, thanks for calling out the wins. We renewed out biggest customer, Expedia, to a long-term deal, as well as out second-biggest customer, American Express. And I mentioned BCD and Flight Centre, two of the biggest travel providers in the world; it really was a big chunk of activity.

And as I said, our approach on these renewals is that on a base-business basis, it's business as usual. We are renewing these contracts if we're going a good job for our customers. We're always looking for ways to grow and to and find new pockets of opportunity as we work through the new renewal and to refresh relationships.

In some cases the investment is taking us into new markets. In other cases it's to add new capabilities that a customer renewal is telling us that if we add we'll benefit by getting more business over the longer haul, or just by driving more value for them.

So again, natural course of the business. This was a unique chunk of business that we had so maybe big deals piled up in a short period of time. Happy to have them behind us but we really do see upside with all those customers as we push out into 2017 and 2018.

If we can accelerate a little bit of CapEx, spend a little bit more of OpEx, it's a great investment in the business. It's what we've talked about repeatedly of where we want to put some additional investment in the business when it has that kind of clear sustainable payback.

Got it, that's helpful, thank you.

Mark Moerdler, Bernstein Research.

Thank you very much. Rick, drilling a bit more into the increased investment in the travel network, two related questions. First one, how should we think about the fees you're paying or the percentages for sales and commissions to the internal employees in the agencies? Has the cost of closing that business changed significantly? Or is basically the cost of driving that revenue staying reasonably stable? And then I have a follow-up.

Reasonably stable, it hasn't changed significantly. And as you see, we're winning business, we're gaining in market share. And we're doing that with having our gross margin and our EBITDA margin actually a little bit higher than what we thought at this point in a year. So that gives us a good flexibility. It says we're winning on the things that we always say we compete on first, second and third, which our overall product, the innovations, the ease of use, the end-to-end efficiency for the agencies. And all you need to do is be competitive on price.

Perfect. So you're not having to pay more to win. Second question is I know you've given a little bit of data but in terms of looking at the large amount of deals that obviously you've closed, can you give us a sense of how much the dollars, or some other metric, how much of that is wins versus renewals of deals that you basically were able to close earlier and lock down?

Again, as Tom said, we renewed with a couple of our biggest ones. And then there's a couple wins in there that you guys are, I think, aware of. We don't call out every single one, I mean, we deal with hundreds and hundreds of travel agencies, OTAs, brick-and-mortar, you name it. These were rather large, so we called it out here.

Perfect. Thank you, I appreciate it.

Thanks, Mark.

David Togut, Evercore ISI.

Thank you, good morning. Good to hear the strong sales activity in the travel network business. Could you talk about market share trends in the quarter? In particular your reported data show a 70 basis point decline in global air data.

Looks like Amadeus was up about 80 basis points on a global basis, with the big share gains really occurring in Asia-Pac and North America. Are these just short-term shifts that you think will reverse in the next few quarters? Or is there something else we should be thinking about?

Thanks, David. The quarterly rhythm of shares is driven by a whole bunch of things, including the ins and outs of how different markets are growing. Or as we said in our remarks, there's some implementation ebb and flow that happens that can drive share.

We really focus on that year-to-date number. We are up almost a full pip point on share year over year. The business that we just renewed and signed up, talking about 5 of the 10 biggest travel providers in the world, all of which we have a very large shares of, in some cases above 50% shares of some of these biggest players in the world. We think we can expand there and we think that will lead to longer term share growth. And we think we have a very advantaged position, a more balanced position, than our competitors

Understood. And shifting gears to airline and hospitality solutions. I think you've called out an intermediate-term pipeline of about 650 million PBs that you're pursuing. Could you talk about the propensity of the airlines to outsource in this environment, as booking slows and perhaps they focus more on ways to reduce costs?

We don't think there's any change there. We think it's a long-term trend that's going to continue. We said that it's early in the enterprise side of the hospitality market for outsourcing, in particular in the central reservation system.

But in the airline market, we don't see any slowdown as to change. We think that, that pipeline still holds. We've said all along that the timing is always hard to predict as far as we can see deals coming. We can see our [FPs] come out but we can't always see the finish line as far as when people make decisions.

But the propensity to buy has not changed. And as I mentioned in my remarks, and in some of the areas where we've really nailed a solution like we have in crew, where we clearly have the best product in the market, there is a propensity for people to line up and talk to us about buying it.

As long as we do our job and hold up our end of the bargain on innovation and showing carriers or hoteliers a path to a better cost of ownership and an ability to innovate and leverage at scale, I think that trend is going to continue and we can be a stimulator of it.

Hey, David, this is Rick. I want to add that passengers boarded overall in the industry are still growing, and growing quite robustly. Our own, on an organic basis just in the quarter were 6%. And also, I think airline capacity is actually growing and it will be higher this year than it was last year. So not to be confused with a number of airlines have said they're slowing their rate of growth in the second half a bit.

If you remember at the start of the year we talked about that could be likely and our guidance expected that. If it happened, we could play well within it. But I think two things to reiterate is passenger boarding growth is having the typical strong secular growth of the industry that grows faster than GDP. And capacity this year will be higher than it was last year, even if some people are pulling back their plans a little bit, particularly in Q4.

Understood. Thank you very much.

Thanks, David.

Thanks, David.

Ashish Sabadra, Deutsche Bank.

Hi, I'll ask a question on solutions. Solutions growth has been trending like 16% in the first half. You reiterated your 17% guidance for the full year which will imply a material improvement in the back half. So I was just wondering how much visibility do you have around that and what are the drivers for improvement in the revenue growth in the back half?

Yes, Ashish, it's Rick, thanks. You've got it right, we will have a stronger growth there. And as I mentioned, more so even in Q4 than Q3 just on quarterly seasonality. And we still expect the 17% growth for the year, so all the numbers are intact.

Again, it's really just a good visibility on what we have, particularly in hospitality as that becomes a bigger portion of our business. And in airline, of course, we have across really three suites of product, our SabreSonic reservations suite, our RF Centre and AirVision. So it's really a combination of those, if you look at those three.

And then in hospitality, it's really much more balanced across those than, say, two years ago where we were a little bit more reliant on airline reservations, the SabreSonic suite. So given that, all of those have attributes of where we have strong predictable sales pipeline, implementation pipeline, that we had a history with, reliable. Airlines have some adjustments to that, we move somebody up, we move somebody back.

So we feel pretty good about it. No different now than what we felt in terms of the visibility, predictability that's since we came public, other than we're a little bit more balanced in those four suite of products. The three across airlines and then the hospitality in totality.

Thanks for the color, Rick. And then on the GDS side the bookings fee, if I divide the transaction revenues by the GDS booking, the booking fee improved like 4% year on year. That was a significant acceleration than what we've seen historically.

Can you talk about the pricing trend? What's driving that? Is it mix shift? What's really driving the pricing increases and the sustainability of those pricing increases going forward?

(multiple speakers)

Rick and I both liked your question. (laughter)

Tom, take it away.

I'll take a stab at it. There's always a little bit of -- when we see that kind of gain, a 4% gain, there's definitely some mix shift in there. As we said, we had a strong Asia-Pac growth quarter versus rest of world. We saw a return of growth to Latin America. We saw a little bit of growth in Latin America where booking fees are a little higher than North America.

And as we said all along, we expect as we renew contracts with our supplier base, that we should see moderate price increases. We've talked about it at about the rate of inflation. And that's what we're seeing.

So the combination mix and a little bit of renewal uplift is what's driving that. We haven't kicked that forward too far, Ashish, but we did see a good quarter from an average price perspective.

Okay, thanks.

Jim Schneider, Goldman Sachs.

Good morning, this is Lara Fourman stepping in for Jim. I was wondering, on margins, you spoke a little bit on the guidance. Can you give us a sense of what time frame you think the travel network margins can get back to 42% once you optimize Abacus?

And then on the solutions side of the business, as your new solutions wins come on next year, do you think it's reasonable to expect another 100 bps of margin expansion in that segment?

Hi, Lara, this is Rick. Just a reminder, in travel network we said for our medium-term guidance that it's around 40%, not 42%. We moved the 42% down to 40% with the full integration and acquisition of Abacus was the primary driver for that.

What I pointed out in Q2 and for the rest of the year is we are actually doing a little bit better this year than what we expected, so we are in between that 40% and 42%. But again, we expect it to be closer in the medium term to 40% than 42%. That allows us to have the right kind of [flexibility] to invest for total revenue growth, total margin growth and total free cash flow that maximizes the business. I think we're demonstrating we're playing that well.

We'll be in between those ranges a little bit here this year and next, but that's just a reiteration of what we look a little bit further out. Real happy with the performance of travel network in the first and second quarter to date.

On the solutions side, again, as we've talked about this year, in the high 30%s. We are tracking to that quarterly. You have some variation here as we've seen in Q1 and Q2, then we pick up a bit.

And then moving forward, we had said previously that 2017 would be at the very high end of the 30%s. That wasn't a limit. We talked at our Investor Day where we updated our medium-term outlook and expectations. And say we have visibility from there into the low 40%s margin on the solution business. And again, I believe we remain intact for meeting those expectations.

Thank you.

Thank you

Thank you

Jason Kupferberg, Jefferies.

Thanks, guys. I just wanted to a finer point on the market share trends and expectations. I know you're up almost 100 bps year to date and the metric can obviously be quite lumpy on a quarterly basis. So based on the recent new wins, are you suggesting that when all is said and done for full-year 2016, you expect some meaningful global improvement in overall GDS share? Whether that ends up being 50 bps or 100 bps, but some sort of meaningful number once we sort through all the quarterly fluctuations?

We said that we can consistently grow share. We haven't forecasted out where share will land but we've said we'll be a consistent grower and we still believe that. So we'll stand with that we think we can take share everywhere in the world. Yes, there are some quarterly ups and downs, but we expect overall that our trend line will go up.

Jason, the new wins will lag a bit so it doesn't have a big impact on our expectations this year. This year remains intact with or without those, and then just another thing, as I say, cements the foundation going forward, as I mentioned in terms of our proof points around the sustainability of incremental, sustainable, profitable market share growth.

Okay. And any update on the progress of the CEO transition?

I think we've commented as much as we ought to. We said we had a window here that we feel comfortable with and we're working through that process.

Okay and last one for me. I know you guys don't normally break out solutions between airline and hospitality, but anything, even qualitatively, you can tell us in terms of relative size and growth rate, given especially all the rapid growth in hospitality recently?

We've broken out those in our K and you can see those and do the -- we have got the math of what last year was. Again, as we said, in overall solutions growth, we expect hospitality to be growing faster than the average of those two and that's the case. So everything intact on there, nothing to add from what we talked about before, Jason.

Okay, very good, thank you.

Appreciate it

Jed Kelly, Oppenheimer.

Great, thanks for taking my question. On the macro environment, is there a difference between business and leisure travel trends? And with business in particular, is some of the softness more of an issue of people paying down on overall ticket value instead of suspending trips?

The answer is yes, we see more of a softness on the business travel side. And I think it's been there's been softness in segment-specific areas. You certainly have seen now a multi-year softness in the energy sector where I would say trips went away, not looking for cheaper fares.

Companies always look for the best available fares on the trip that's needed. And in our world, it doesn't matter whether they -- in fact, we want to help them find the best available fare for the trip. So we're not sensitive to those price fluctuations on the airline side, we get paid on a per-booking basis.

But energy sector trips went away. In the financial sector, trips have also gone away. So in the year there's been a lot of cost cutting as banks, and banks in particular, have had earnings shortfalls and they've cut costs. And travel is one of those expenses that is early in the queue when broad cost-cutting is going on.

That's primarily the big sectors that we've seen. But in the US it's been soft now for quite a while on the business travel side. I think that flows into the big corporate markets around the world, as well.

Not anything new there. I think the new thing around the macro is, as Rick mentioned, a pullback in capacity. capacity will still grow but we see airlines pulling back some of that capacity growth that they forecasted coming into the year.

Jed, this is Rick. On the leisure side, yes, there is good growth. In particularly the North American market we've seen the dynamic that we talk about in the businesses. Airlines are using price selectively on markets to keep their planes very full. So you see the load factors continue to be very high. They use the price, particularly primarily on the leisure to stimulate that demand.

Again, that doesn't flow through to us because we get paid on a per-booking fee and that's the beauty of this model. We're seeing that work and we pick that up through our great position, for instance, like Expedia, the biggest air travel booker in North America. They pick up leisure and they also have a business side in Egencia, so we see it both ways there.

Thank you.

John King, Bank of America.

Yes, thanks, guys, and good morning. Quick question on Abacus if I can. Can you update us there in terms of how the integration is going? And any sense around the like-for-like bookings (inaudible) you're seeing there? Because Abacus lost a little bit of share before you acquired it, have you been able to stabilize that at all as of yet? Some comments around that.

Thanks, John, this is Tom. The operational integration is largely complete. We have some continued things that we have to do, but for the most part I think the big chunks are complete. We've been extremely pleased with the go-to-market side and our ability to manage customers and sell in the market. We saw share gains in the first quarter. We've held steady here and we believe that we will see future share gains there.

I'd like to have the same steady growth in market share in Asia-Pac as we have had in EMEA. That should be our expectation over time. And I think we have -- our view has been that we have even more opportunity there because we knew that the joint venture had some weaknesses in how it went to market and the consistency of how they went to market across the geography.

We feel very, very good about our position there. I mentioned these five customers I mentioned are global customers and we expect in some cases to have the growth be in that Asia-Pac region. We have a little bit of work to do to get it done but we expect to see the growth there.

Great, thank you

Thanks, John.

Matt Broome, Cowen and Company.

Hi, thanks for taking my call. It sounds like you're very close to about the options for crew management. Could you discus the competitive landscape for that product and when you think it might become a meaningful revenue stream?

Yes, we are already the leader in the space. I mentioned it's about a $250 million TAM in the crew area. We've had very good traction. We have talked before that Singapore Airlines is our launch customer in Asia-Pacific region. We've had a number of Asia-Pacific deals come in behind that, including Garuda in Indonesia and Lion Air in Indonesia. We have some other business we will talk about as we get further into this quarter that will close in the Asia-Pac region. We've had North American business close recently.

From a competitive landscape perspective, there is a lot of legacy crew systems out there. This is still a solution that in many cases that the biggest airlines in the world is sitting in a very legacy environment. Airlines don't like to touch the crew system necessarily because there's this issue, as I mentioned, very complex. It's driven by a variety of work rules that come from governments, global regulators, as well as work rules driven by contracts.

So it's a complicated area and it impacts a big part of your cost base and a big part of your employee base. So changing it is not simple but, as I said, we're benchmarking in some cases two and three times better than some of the legacy benchmarks out there. We expect to get big traction here in market. Competitively we have the best solution in the market, we've validated it over and over again in the sales process.

I'm just very bullish as to why we need it this morning. As an example, when you're benchmarking two and three times faster than competitors and can save an airline days at an operational recovery, the dollars in that cost justify the purchase of the solution and the cost of the change pretty easily if we do our job in teeing it up with the airlines. Very bullish on it. We'll see revenue growth there this year and certainly into next as we announce bigger -- not just diversity and regional deals, but I think bigger and bigger carrier deals.

Okay, great. I suppose in terms of Trust, can you give us an update on how the integration there is going and is it still on track to contribute $14 million of incremental revenue this year?

Hey, Rick, this is Matt. The answer is yes and yes. All good.

Perfect, thanks very much.

Thank you

Abhey Lamba, Mizuho Securities

Yes, thanks. This is [Partha] sitting in for Abhey. To follow up on a previous question, the incremental CapEx for the year related to travel network, I think you mentioned that the incentive rates of stayed about the same. Can you give us any additional insight into what that marginal spending in 2016 entails?

This is Tom. I mentioned that as we renew these deals we look for opportunities from our customers for growth. Sometimes that's how we can serve them better or new functionality. Sometimes it's what we need to do to take them into a new market.

This is a little bit of both of those. There's some deals where we have very big upsides to move business our way based on some requirements that our customers have talked to us about. In some cases it's acceleration of road map. So it's not necessarily new things but things that we're pulling in quicker. Again, I think (inaudible).

This is Rick, Partha. It will enhance our overall offering, it's not just specific to this new customer win that is driving the acceleration. It benefits the whole Sabre Red Workspace platform.

Okay, great, thank you.

Thank you

(Operator Instructions)

Brad Erickson, Pacific Crest Securities.

Hi, thanks for taking my questions. Just a couple follow-ups. You mentioned you're seeing some of these airlines give on price in certain markets to maintain load factors, but obviously calling out an overall more muted bookings environment. So the question is, are you seeing any elasticity associated with those pricing actions by airlines? Or is that something that's still maybe on the come?

I think the industry has a long-term capability to figure out how to fill seats with low prices. I think in some markets the ebbs and flows of that vary by market. In some markets airlines have held down the price a little longer than we expected them to. I thought that was true coming in to the summer.

But we are seeing price stimulate demand in other markets. Overall, we've talked about a relatively low growth macro and that's what we're seeing. But I do think as airlines continue to add capacity, which, again, they are doing, just at a slower rate than we expected, they will use price to fill up those seats.

Brad, this is Rick. It's working as it should. They have got the financial strength and flexibility to do it and it's keeping their load factors up. Yes, it hits the PRASM a little bit, but all good and for our business it's working the way it should and the way we like it and gives us that both growth and stability.

Got it. Can we get an update on your views of market share between GDS and then direct air bookings? Any changes you've seen lately? Thanks.

As I said earlier, our share year to date is up almost a full point. We expect that in the year to grow. Again, I feel like we can take share globally. We showed that in the first quarter where we had growth in all four regions of the world. That's our expectation, is that we're going to have an upward share trend over a long period of time.

On direct versus indirect?

There's not really anything new going on there. We said that we felt like the direct and indirect moderated. And as I mentioned in my remarks, this notion around where ancillary revenue is coming from, $60 billion of revenue last year, the large majority, and when we say large majority, I mean up in the high 80s, low 90s percentile of revenues on the ancillary side are coming through the direct channel.

Now some of that is sold at the airport and will continue to be sold at the airport. So things like baggage fees primarily are going to be an airport purchase. But as the airlines look at what they've done with ancillaries on their direct sites and what they can do next, next it isn't necessarily more products on their direct site. Next is driving those products through travel agencies, incenting travel agencies to sell them and pushing them through indirect channels.

The technology is there to do that. There has to be some changes around how the airline airlines think about pushing those ancillaries through. Because much of the indirect channel business has many of ancillaries bundled in. You have people buying higher fare classes that already have many of the ancillaries bundled in. So they have to be more savvy about how they push those offers out. But we built out that technology to let them do that. And if they look at where the next chunk of ancillary revenue comes from, in our conversations with them, they believe it's going to be in the indirect channel.

Got it. That's helpful, thanks.

Thank you

That concludes today's question-and-answer session. I would now like to turn the call back over to Mr. Tom Klein for any closing remarks. Mr. Klein?

I just want to thank everybody again for joining us and wish everybody a good remainder of what's left of the summer. We appreciate your interest in Sabre and we look forward to seeing you face-to-face or talking to you soon. Thanks so much. Have a good afternoon.

This concludes today's conference. Thank you for your participation and you may now disconnect.