Sabre Corp (SABR) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Sabre's First Quarter 2017 Earnings Conference Call. Please note that today's call is being recorded, and it is also being broadcast live over the Internet on the Sabre's corporate website.

This broadcast is the property of Sabre. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of the company is strictly prohibited.

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

Thank you, Rochelle, and good morning, everyone. Thanks for joining us for our First Quarter 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 the 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 certain 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'd 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, earnings, cash flow and CapEx, our expected segment results, the effects of new or renewed agreements, products, implementations and acquisitions, our expectations of industry trends and various other forward-looking statements regarding our business.

These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. Information concerning the risks and uncertainties that could affect our financial results is contained in our SEC filings, including our 2016 Form 10-K.

Participating with me on today's call are Sean Menke, our President and Chief Executive Officer; Rick Simonson, our EVP and Chief Financial Officer; and Chris Nester, our Treasurer and SVP of Finance. Sean will start us off and provide a review of our strategic and commercial performance. Rick will offer additional perspective on our financial results and forward outlook. We will then open up the call to your questions.

With that, I'll turn the call over to Sean.

Thanks, Barry, and good morning, everyone. I appreciate this chance to continue the dialogue with all of you. We got off to a solid start in the first quarter with stronger-than-expected revenue, EBITDA and EPS growth. The macro environment around the world remains supportive of growth in travel with solid global economic growth helping to drive strong GDS industry growth.

As you've seen, airline traffic numbers as recorded by the major airlines were strong in the quarter. Q1 also benefited from a favorable comparison to the year-ago quarter when GDS industry bookings declined 1%. These factors help support strong bookings, passengers boarded and hotel transaction growth across all businesses in the quarter.

Our strong top line performance was driven primarily by better-than-expected booking environment in Travel Network where our total global bookings increased 6%, paced by 6.3% growth in air bookings. Top line performance in Airline and Hospitality Solutions came in about as expected, supported by 7% growth in passengers boarded in Airline Solutions, reflecting our mix of carriers and continued strong transaction growth in Hospitality Solutions.

For Sabre overall, this results in total Q1 revenue increase of 6%, driven by 6% growth in Travel Network and an 8% growth in Airline and Hospitality Solutions. Adjusted EBITDA was up 4% year-over-year. Adjusted operating income down 1% from a year ago, adjusted EPS in Q1 of $0.42 was up 2% from a year ago and free cash flow for the quarter totaled $35 million.

In addition to the financial performance in the quarter, we had commercial and implementation successes across all regions of the globe that we expect to support our continued growth in the years ahead.

In Hospitality Solutions, we had several wins, including a new customer, Grand Hotels, and a share-of-wallet expansion deal at Two Roads Hospitality. Successful CRS implementations included Oak Hotels & Resorts and Hospitality International.

In Airline Solutions, we had a number of new wins in the quarter, including Intelligence Exchange at LATAM. We also had a SabreSonic win at PAWA Dominicana. Although PAWA is relatively small, they demonstrate the flexibility of our solutions to service airlines of all sizes and scopes of service. Among Airline Solution's cutovers in the quarter, we successfully completed the implementation of Movement Manager at Thai Lion and Malindo Airlines out of Malaysia, representing the second base of our connected airline implementation across operations at these growing airlines.

In Travel Network, among our suppliers and agency renewals and additions, we signed our first-ever full content agreement with Hertz rental cars and renewed corporate travel management, or CTM, to a new long-term agreement in APAC. CTM is a fast-growing global agency that is leveraging a suite of our offerings to support the continued growth of their business, including making great use of Sabre Red API as well as broad adoption of GetThere, Sabre vertical payments and travel security and automated exchanges. The phased introduction of a new Sabre Red Workspace continues to go well with multiple pilot customers around the world using the product and the broader SaaS delivered rollouts scheduled to begin mid-year, starting in North America.

The new Sabre Red Workspace is an important component of our distribution offering. As we talk to airline customers about their distribution strategies, it is clear the old distinctions between direct and indirect distribution are becoming outdated. Our customers want to take a more holistic view of distribution going forward with their ability to leverage all sales channels to optimize their revenues, networks and customer experiences.

As carriers look to personalize and customize their offerings, they need to bring together the insights from the direct and indirect channels to have a keener point of view of the customer. As a leading provider of PSS systems and GDS technology, we have a unique position to enable this shift and deliver capabilities and insights from across all points of sale. So we think our GDS expertise and insights can combine with the passenger systems we already provide to give our airline customers more value.

We are progressing on implementing our 2017 technology investment priorities while refining our longer-term road map of technology evolution. We've invested significantly over the last several years and will continue that investment strategy to bring enhanced capability, speed to market and increased efficiency to Sabre and our customers to help ensure we remain at the competitive forefront.

We have made continuing significant investment, both CapEx and operating expense, in our technology architecture, network systems, platforms and applications over the last several years. This has allowed us to grow market share across all our global businesses: Travel Network, Airline Solutions and Hospitality Solutions.

For the 3 years from 2013 through 2016, we increased overall annual technology spending, both CapEx and OpEx, by approximately $185 million, from $762 million in 2013 to nearly $1 billion in 2016. This investment drove innovation in support of the evolution of our technology architecture and platform solution to take advantage of more efficient, stable and secure solutions.

Today, we operate in a mix of environments across mainframe, midrange and cloud-enabled systems. Over that time, we grew revenue by an even greater amount. That combination is how we achieve benefit from effective investment in our technology. And we're able to scale the business for positive financial operating leverage as well as customer wins in the form of increasing market share.

In 2017, we are accelerating our adoption of the latest open source technology and midrange processing as well as accelerating the delivery of cloud-based solutions to our customers. A few specifics here are worth noting. As discussed last quarter, to further enhance systems and network stability and capability and the technology in our shopping complex, we have decided to migrate and rearchitect our shopping and booking complex to a Sabre-managed data center. We expect this evolution to give us the ability to better manage shopping and allow us to evolve with the changing business models around increased consumer and industry shopping trends, including partnering with airlines to bring ancillaries and branded fares to key distribution channels.

We are also building out a Sabre-managed/operated global network operations Center, or GNOC, that will provide improved comprehensive system monitoring and enhanced capabilities. We are making great progress in these initiatives and the work on both projects is well underway. Our GNOC will be operational in Q2 and we expect to begin migrating shopping activities by Q3.

In Hospitality Solutions, our central reservations and new property management solutions are 100% architected for the cloud. Our enhanced property management systems has been designed and developed as a 100% cloud-based, scalable, cost-effective solution. The combination of cloud deployment and ability to integrate open source solutions will allow us to respond to our customers' demands for speed and agility while balancing our cost. We are spending an incremental $10 million this year to accelerate the development of this industry-leading cloud-based solution, which we had previously disclosed.

Our Airline Solutions environment is a strong current focus as we complement open source systems with transition to the cloud in many areas, including our new Revenue Optimizer.

So we are continuing our evolution, and our investment levels are up in 2017 for clear, identifiable, long-term benefits to Sabre and our customers. We have made clear that 2018 will have some elements of similar spend and will reflect similar business fundamentals to 2017. However, we remain focused on returning to overall technology spend growth levels that are below our strong revenue growth rates in order for -- to further realize the financial benefits of scale and effective ROIC. We will continue to update you on our progress in these initiatives as we refine and prioritize during the remainder of 2017.

With that, Rick will give more of a normal granularity on the first quarter results before turning to what we see ahead for the balance of the year. Rick?

Thanks, Sean. In Airline and Hospitality Solutions, Q1 revenue increased 8% to $258 million, driven by mid-single digit revenue growth in both SabreSonic and AirVision, AirCentre, further bolstered by Hospitality Solutions growth of nearly 25%. Solutions EBITDA margins were 33.1%, resulting in solutions EBITDA of $86 million, growth of 3%. Solutions EBITDA in the quarter was negatively impacted by service-level credits in the low single-digit millions related to a third-party vendor-driven technology outage. EBITDA margin would've been consistent with year-ago levels excluding this additional expense.

Passengers boarded growth benefited from the strong macro environment. 196 million passengers were boarded through our SabreSonic reservation system in the quarter, a 7% increase year-over-year. Passengers boarded growth on a consistent carrier basis, which now includes American Airlines, was 4% in the quarter.

Q1 Travel Network revenue increased 6% to $663 million, driven by solid bookings growth across all regions, and segment EBITDA increased 6% to $290 million in the quarter. Our Travel Network EBITDA margin was higher than forecast in the quarter. The first quarter is typically the seasonally strongest for Travel Network EBITDA margin. Margins were also supported by bookings growth that was at or a bit above our expectations.

Our Q1 margin was further improved by the reversal of a liability that had resulted from renegotiation of agreement with a travel agency that was considered to be out-of-market terms in our original Abacus purchase accounting in 2015. We had this in our full year plan coming into the year, but the timing was uncertain. Excluding the impact of the contract signing that triggered the release of the $16 million liability, Travel Network Q1 EBITDA would have been up modestly year-over-year. For the full year, we continue to expect Travel Network EBITDA margin of about 39% to 39.5%.

Travel Network's revenue growth was supported by first quarter air bookings up 6.3%, with solid growth in every region of the world. Non-air bookings increased just over 2%, resulting in overall bookings growth of 5.8% for the quarter. After a very strong start in January, bookings growth rates were more in line with our full year expectations over the balance of the quarter. We continue to see the environment as supportive of solid bookings growth for this year. We expect the middle of the year to be less robust than Q1. For the full year, we continue to expect bookings to increase mid-single digits.

Travel Network bookings growth was geographically broad-based. Growth was again strongest in Asia Pacific at 9.6% with 3.2% growth in North America and an 8.6% increase in Europe, Middle East Africa. Bookings increased 8.4% in Latin America in the quarter. This is the strongest growth we've seen in that region since 2013. Globally, Sabre's Q1 share of GDS air bookings was 36.7%, relatively consistent with Q4 2016 but down 70 basis points year-over-year, primarily driven by customer mix within the regions.

Year-end total debt increased slightly to $3.2 billion, and leverage ticked up to 3.1x trailing 12 months EBITDA. From first quarter operating cash flow of $123 million, we generated free cash flow of $35 million. Q1 GAAP CapEx totaled $88 million and capitalized implementation costs were $17 million.

During the quarter, we repurchased 532,500 shares under our share repurchase authorization for approximately $11.5 million in aggregate. Inclusive of our first quarter dividend, we returned $50 million to shareholders in the quarter.

Now looking ahead for the remainder of 2017. We are reiterating the full year Sabre-level guidance we gave in February. At a high level, Q1 results were a bit above expectations. As it relates to published estimates for the remainder of 2017, the Q1 EBITDA and earnings upside should come out of Q4. It's driven by incremental operating expense for technology initiatives that we expect we'll get more fully in Q4 as well as the earlier-than-expected signing of the agreement in Travel Network that reversed the liability on the balance sheet in the first quarter and pulled the related EBITDA forward.

We are also forecasting our full year tax rate to be between 31% and 32%, given our current view of our mix of business compared to the earlier guidance of between 32% and 33%.

To recap, as you recall, we expect total revenue growth of 5% to 7% or between $3.54 billion and $3.62 billion. Adjusted EBITDA for the year is expected to be between $1.08 billion and $1.12 billion, with the full year EPS expected to range between $1.31 to $1.45. We continue to expect free cash flow of approximately $350 million for the year.

Here, let me please note this reiteration of earlier 2000 -- full year Sabre guidance does not include any possible impacts from the possible reorganization proceedings associated with Alitalia [AS] as reported in the press this morning.

With that, I'll turn the call back over to Sean for some final remarks before opening up the call to your questions.

Great. Thanks, Rick. Our first quarter performance was solid, and I am pleased with how we kicked off the year. These results provide a good foundation for us to build on for the balance of the year. I want to commend our teams for their hard work and commitment to serve our customers and shareholders alike.

We are making solid progress in executing on a number of initiatives outlined at the beginning of the year, which includes strengthening our organization. As you saw from our announcement last week, Wade Jones had been named President of Travel Network, and Dave Shirk and will be joining us soon to lead Airline Solutions.

I'm really excited to have Wade move into a permanent role as the President of Travel Network. I worked closely with Wade in my time at Sabre, and he has been a key player in helping us define where we can grow the Travel Network business and how the upcoming launch of our new Sabre Red Workspace can better serve our airline, hotel and other partners as well as the travel agents, corporate buyers and consumers who rely on the GDS.

Dave Shirk is a proven leader of large-scale technology and software companies. He has overseen billion-dollar-plus product portfolios with multiple product lines. His approach and leadership style will be additive to actions underway within our Airline Solutions portfolio. Most importantly, he'll be a valuable asset as we further refine our strategies and vie in the next phase of growth and focus for our company in the hundreds of airline industry partners that use our solutions.

That wraps up our formal comments. I want to once again thank you for joining our call today. And with that, I will ask the operator to open up the call for your questions.

(Operator Instructions) And our first question, we'll hear from Mark Moerdler with Bernstein Research.

Two questions quickly, if you don't mind. Hospitality grew quite fast this quarter at roughly 25%. Can you give us a sense of specifically what the drivers? Is this more new customers versus customers using more modules or increased total hit -- utilization? How's the mix driving on? Then I have a follow-up.

Yes, Mark. This is Rick. It's driven by continuing rollout of the implementation of Wyndham, both across our central reservation systems, where we're doing brand-by-brand across all 7,500 of their properties, as well as the property management system that Sean talked about as we roll out through that through their limited service properties across the target of about 4,500 properties. So that's a strong driver of the growth. Not to be forgotten though is, again, the continuing good, strong double-digit growth that comes from across our global portfolio across res, digital marketing services and beginning to be in property management across the independent hoteliers that, as you're aware, very fractured and still very much using a plethora of non-scaled, less than cost effective and customer-friendly systems that are hosted internally or by point providing -- solution providers. So it's a combination of those 2 things that get us to that approximate 25% growth.

Excellent. That very hopeful. Another quick question. This quarter, non-air bookings grew slower than air bookings, lower attach. How do you see this trending going forward?

I'll take on that, Mark, and then have Rick add. So if you look at what's really taking place in a year-on-year basis, one thing that is happening that we talked about is just the growth in OTA bookings. And with OTA bookings, you have -- you don't have as many attached hotels. The other thing is specifically in APAC as well. You see the attachment rates are lower. So as we continue to see higher levels of OTA bookings, as continued growth in APAC, that's essentially what is laying on the attachment rate.

Nothing to add there. Thanks.

We'll move next to Jim Schneider with Goldman Sachs.

I was wondering if you could maybe just kind of give us a little bit of an update on the accelerated investment plans. Maybe talk through the different pieces of that accelerated investment and kind of where you are in the run rate of that investment and at what point you'd expect any of those to begin rolling off.

Yes, sure. Thanks, Jim. This is Rick. Well, the first is, let's go to Hospitality Solutions. Again, what we did was accelerate $10 million spend there to continue to further develop our property management system. So that's the continuing release of new revs in our limited service property management to accelerate that, develop the additional feature functionalities, all consistent with our road map of what we're doing in a single-instant, multi-tenant, community-based property management system. But we've seen enough traction, enough demand to accelerate that by $10 million. That's going as planned. And then on the stability initiatives, as I outlined earlier, the biggest one is the move of the shopping complex. That's kind of the shopping pricing complex that drives a big portion of our bookings business in Travel Network and the related PSS passenger reservation system. Those are things of that are core to those 2 businesses to get full distribution for airlines. We're moving that from HPE-managed data centers -- or the old HPE. It's now DXC rather, from up in Tulsa, Oklahoma. And we've rearchitected that. So it's important it's not only moving from somebody else's managed data centers, it's moving to Sabre-managed colo data centers to get the best-of-breed of colo providers here in North Texas. But importantly, we've used the opportunity to rearchitect that so that we increase the ability to innovate on top of that with applications, and we increased the stability of the redundancy in the 2 different data centers. That's going along well. As Sean mentioned, we'll be moving over traffic in the shopping complex in quarter 3. We're racking and stacking servers right now on the floor. And in terms of the GNOC, which is also related to that, yes, we had a GNOC before, but it was managed by HP -- the former HPE, now DXC. We made the decision to bring that in-house, again, to take advantage of best-of-breed GNOCs and also hire in some talent there that just stood up and run some of the biggest ones in the industry and in the world. So we're going with that. That's in Bangalore. Obviously, it connects virtually with everywhere we need it to be in the world. It's up and is running and we're putting it through its paces. It comes on in this quarter, second quarter. And so both of those things are essentially fully operationalized by the fourth quarter of this year. It's on plan. We said in the second half is when we'd beginning to get advantage of that. And importantly, in the data centers, we've incorporated some, I think, very best-of-breed flexibility around capacity to handle this increasing shopping load that's hitting the industry, the so-called look-to-book. We have a flexi capacity arrangement with the new HPE, as distinct from DXC, in using their flexi high-density servers and having them available on a by-the-drink demand basis so that it saves its CapEx. We have [tall hot] availability sitting there on the floor, but we don't pay for it until and if we need it. So it's a great flexibility financially on how to manage CapEx OpEx and also would help be very well prepared for the shopping data loads that are going forward. Those are the 2 big pieces. We said there's some other related operating expense around certain stability and security initiatives. Those continue to move through the year and are progressing as we plan.

Yes. Let me just add to that. Rick got into a level of granularity there, but as we kick off the year and identified some of the things that we're going to do, this has been, as you would assume, highly visible within the organization. We have teams that are aligned to all of this. We report out on a weekly basis on progress being made. I am very pleased with how the teams have engaged in what's taking place. Just to touch on the shopping thing as well, part of our shopping team has gone into and is -- we are out visiting with many analysts as well as investors, talking to them not only about the infrastructure, but what we're also doing as it relates to really the algorithms, as well as looking at catching opportunities, continue to aggressively go after that to find ways of continuing to find improvement. So again, a lot of work and a lot of progress made in the last couple of months.

That's helpful. And then as a follow-on to that, I wanted to ask about free cash flow. Obviously, that's been a pretty lumpy metric over the last several quarters. It was again in this quarter relative to the run rate you predicted for the full year. So can you give us a sense about how that free cash flow progression is going to flow through in the different quarters of this year? And then any update you can provide us in terms of a potential recovery in free cash flow as we go through some parts of 2018.

Yes, Jim. Thanks for that. This is Rick. The flow-through for the quarter is really from the good operating cash flow to free cash flow, was just hit by some working capital items. One, remember the acceleration of the EBITDA from the release of the liability associated with that at-market contract is a noncash item. So operating EBITDA, operating cash flow is benefited by about $16 million in the quarter, it doesn't flow to cash, so that's your big one. And then it's just the timing of hitting the clearinghouse exchanges again. So we expect to pick up materially in terms of Q2, and then further, be well over the $100 million range in Q3 and Q4. So we're on track for the approximate $350 million this year. Going forward, we haven't given any update on 2018 free cash flow. We'll do that as we work a little bit further through the year, consistent with what we said last quarter and subsequently, as we spoke with you and investors. What we're trying to do is put proof points around the investments that we are making, where were getting to return, the benefit from that. And though we do see some, again, similar elements in 2018 in terms of where we're going to spend for the benefits that Sean laid out. And so no further update at this time, but we're going to work through that through the year. And importantly, the work on the portfolio narrowing and focus, particularly in Airline Solutions and how that flows into our whole technology spend, is where our focus is. And we'll be updating you as we go through 2017 on that to get a little bit better view before we give full guidance at the normal time for 2018.

And next, we move on to Matthew Broome with Cowen and Company.

What are you seeing right now on the pricing front with travel agencies?

Well, the travel agency side, I mean, the big thing -- I think I go back -- I'll go back to last year. We had a number of negotiations that took place last year relative to our largest agencies around the world. We ended up doing renewal of the agreement with CTM. The environment has really stayed the same. As a competitive environment that's out there, we continue to see, specifically in specific parts of the world, a little more competitive actions taking place, probably more on the -- what I would consider the OTA side of the equation. It's very consistent with what I -- what we've seen, really, over the last, call it, 12 to 18 months.

Okay. And you mentioned your air booking share was flat to maybe down slightly on a sequential basis. Just curious as to how you see that develop in the second quarter and throughout the rest of the year.

Yes. Sequentially, it was kind of flat year-on-year, down 70 basis points. It's really driven by 2 things. Unlike every quarter to date, our customer base, which is the biggest corporate travel agencies, grew slower than the overall market. And they're primarily based in North America and the North American market was the slowest regional market, as I pointed out, globally. And that's what affects the market share. Again, as we said coming into the year, we expect to have strong market share for the year. This quarterly dynamic is caused by those 2 factors.

And next, we move on to John King with Merrill Lynch.

Maybe just to follow up on the technology investments, probably just to rake over it. But I wonder about the scope of the project that you're kicking offshore and obviously, I guess, somewhat triggered by some of the outages you -- or the outage you had the back end of last year. I guess the risk is -- are there other going to be other things that potentially creep into the scope of this project? Or how do you see that in terms of migrating some of the technologies away from mainframe? Or is that something that you're happy to keep? So that was the first one, just whether -- or where that technology project may start and stop. The second one was going to be on the airline and hospitality business. Obviously, very nice growth in the hospitality side, and the PBs are up pretty well as well. So I'm just trying to square out whether you had any softness in the revenue per passenger boarded metric and what the drivers might have been on that side, if that's the case, or whether there's a mix effect going on. And then thirdly, and I appreciate this is, I guess, pretty short notice around the Alitalia bankruptcy, but maybe if you can talk, at least in abstract terms, about what kinds of changes you might need to make in the worst case if there's any disruption there from that change.

Yes. Sean, let me kick off on the technology, then I'll let Rick talk about hospitality and airlines, and then we'll talk about Alitalia. On the technology, here's the important thing that we did do as we're really mapping out the work that we wanted to be done. It was really comprehensive in nature relative to certain aspects of the business. And we talked about the data centers, we talked about shopping, we talked about the GNOC facility. And in doing that, some of the subcomponents that we have focused on really get into what I would consider to be how we're just managing the business, how we're looking at end-to-end options that are out there. So where we sit today, I feel like we have a very good project and road map in place. As you know, there's always ongoing investment in what we need to do. As we continue to look at opportunities going forward, they're going to be balanced on what is going to be the return. And as I often tell people, that stability is about really food and shelter. You have to have that infrastructure in place, and there's been a lot of things we continue to invest and that we've always invested in. As we look at things into the future, again, this goes into how we look at our portfolio and other things that are out there, is just making sure that we actually are going to get the return that we want and we think that everybody deserves relative to moving things forward. And with that, I'll pass it all to Rick on the other 2 questions.

Yes, John, on the Hospitality Solutions, you have strong growth. We talked about coming to Airline Solutions, particularly the PBs and kind of the mix effect. Just remind you, we had 7% passenger boarded growth in the quarter. And on a same-store basis, that would have been 4%. We did cut over Alitalia since the previous year. And remember, American Airlines is included in that growth now. And as I said, called that out before, and there's 2 effects that, that had. One at being the biggest airline in the world with approximately 200 million passengers boarded, they do get a better rate than a 20 million passenger boarded carrier, for instance. So all else equal, of course, they would, on an apples-to-apples basis, have a lower PB rate. So you have that effect. We've talked about that a lot over the last year plus, so nothing new there. But American Airlines is growing slower than the industry average as well, and that impacts them, that, the breakdown of the PB growth rates. But again, strong quarter on the PBs, as we expected, rates as we expected. Again to that, for the earnings in the Airline Hospitality Solutions, the one thing I pointed out there was, again, we had some negative impact from a slowdown that affected the passengers. And we had -- or excuse me, the PSS system, that we had a small single-digit-millions SLA payment. When it comes to Alitalia, again, I think the announcements this morning and speculation around the fact that Alitalia didn't come to agreement with some of its unions and therefore is expected to be entering a form of bankruptcy and reorganization is what's out in the press. And again, as a matter of policy and accounting for us, if a carrier enters into an organized restructuring program, which is what this is -- may possibly go on, and we moved in a cash basis method of revenue recognition until the bankruptcy is resolved. This results in some immediate impact when that hits. And if it hits in Q2, it would start in Q2, of where you reduce the revenue somewhat in the quarter, [TN and AS], when you move to a cash basis from an accrual basis. But remember, in these proceedings, and there's been many of them in the airline industry in the past, so there's a lot of experience in that matter, key technology providers that are running the systems to keep the revenue going, the passengers flying and the brand viable while they were restructure, tend to get paid. And those payments come through a clearinghouse, so we would expect it to proceed that way.

And next, we'll move to Ashish Sabadra with Deutsche Bank.

I have 2 industry questions. So one -- first one was Travelport talked about dynamic switching, where some of the GDS as that -- sorry, not GDS. But some of the OTAs are experimenting where the traffic gets directed to all the connected GDS, and the GDS which have the most fastest response wins the business. Have you seen similar trend? And if yes, then what do you -- how should we think about, like, the investment that are required in improving the response time going forward? And does it make the share more dynamic going forward? So just wondering if you could comment on this whole dynamic switching.

Yes. We -- this is Sean. When we had been talking, really, over the last 60 days, this is the one of the things that we had talked about, and it is one of the reasons when we have decided to really bring the shopping complex internally. It was one -- this is a primary reason for that. We have not seen anything specific as we look out relative to what is happening. We do know that it's there because many of the OTAs have negotiated these contracts, and they're sophisticated enough that they can do the switching. It's not only a combination of what is it from a speed perspective, but that is also on the incentive side. But again, our ability to continue to stay focused on shopping, focused on essentially the speed, accuracy and bookability, these are really the 3 components that we look at, are the primary reasons, like I said, that we brought shopping in. And as I said, the team has made just some significant progress really in the last 30, 45 days as we continue to look at algorithms and caching and getting the balance of making sure that speed is where it needs to be. A big part of this that this often overlooked is actually the intelligence or how good the team is in working with specific OTAs because there are certain parameters under different buy OTA. And we expect a lot of time going in and understanding essentially their business model and how they're essentially doing their searching and finding ways of actually increasing scale -- or excuse me, speed and bookability. We've done that with a number of OTAs, and we have some very talented individuals within Sabre that can perform those tasks.

Yes, Ashish, this is Rick. Just want to add. I mean, we've been more than competitive with OTAs. As they've grown faster than the overall market over the years, we've had and continue to have a leading position worldwide on that. And so this is, again, just making sure that we're doing the appropriate level of investment to continue to be the leader there. And it is speed, it's bookability, but it's also fulfillment. And it's really across those things. So we're more than competitive right now and intend to stay that way.

That's very helpful. Very, very helpful. Just a quick question on the full content. There has some been some increased rhetoric from Air France and IAG in particular that they want to get away from the full contract -- full content agreement. I was wondering, have you got anything on that front? Or is there any potential risk there?

Yes. Let me just talk broadly, this is Sean again, relative just to a number of discussions that are taking place. And this is really on a global basis. And the one thing that we have stated and continue to state is we continue to look at business into the future, and that's distribution in total, be it indirect or direct. And we continue to be a very strong advocate of essentially full content and why full content is important to really be able to provide to the agency community. And really, it fulfills really what customers are looking for, and that's the ability to understand the options that are out there. Those discussions continue to take place with a number of carriers as we look at what's going on out there. If you look at some of the data, and this is something that we've seen with some specific carriers, you do get the level of -- when carriers do make certain decisions relative to the decisions they are making relative to moving -- trying to move market direct, there is an impact relative to yields and there are impacts relative to bookings that take place. So we continue to have those discussions with specific carriers around the world.

And next, we'll move on to with Abhey Lamba with Mizuho Securities.

Rick, was there plans -- any additional color on what drove the upside to Travel Network by various regions? And what are the quantitative puts and takes that we should keep in mind as we are going through rest of the year in terms of the travel environment? And lastly, can you elaborate on the reversal of the liability that you mentioned, helped your Q1 Travel Network results? What was the quantitative impacts of that?

Sure, Abhey. Let me start with the last one. It was $16 million is, as I pointed out. And again, it's a liability that then, when it gets reversed, it flows through the P&L as a contra-incentive expense. And so that's where it helps cost of goods sold and flowed in through [TN] in that way, specifically, in quarter 1. And then in terms of the regional growth, again, APAC continues to be the fastest, stronger growing region. Wouldn't expect any different there. Important to note though, Latin America's seen its strongest growth since 2013, and it's really kind of continuation of what we began to see last year in the industry, where you started to return to some growth across these regions. So that's an encouraging sign. But -- and then Europe, Middle East, Africa has just had a really fantastic quarter 1 in terms of GDS bookings and air bookings volumes. I would expect that to moderate as we go through the year, and North America continue to be solid. So really not a whole lot of difference in what we expected as we came into the full year, but a little bit better, as we called out. And it's been supported by overall economic growth and then good growth in the GDS channel.

Yes. And I would add to that. If you look at APAC and EMEA specifically, that's where you're seeing from just the airline growth capacity, that's where the greatest growth is actually taking place, that you're actually going to have an increase there. I do want to remind everybody that first quarter last year, we did see the impact of the Paris attack, specifically in Europe, on the bookings. And so you look at sort of the lull that took place last year. So when I mentioned that bookings on a year-over-year basis, when you're looking at '16 over '15, we're down 1%. We saw a bigger impact in EMEA. So it's not surprising that you're seeing a rebound here in the first quarter with EMEA.

And next, we'll move on to Jed Kelly with Oppenheimer.

The airlines continued to have their IT issues, especially in March. Have the recent outages increased or changed the conversations your Airline Solutions teams have been having with the airline CTOs? And then Sean, based on the interview process, can you talk a little bit about how you would describe Dave Shirk's vision for the Airline Solutions segment?

Yes, I'd be happy to touch on both of those. First, just on the conversation with airline executives and what's taking place. And really, over the last 30 to 40 days, I spent a lot of time traveling and meeting our customers and understanding really what they're dealing with. And again, I can remember much of that from my previous experience being in that business. It continues to get more complicated. And with that -- and it goes back to my fundamental belief. And the fundamental belief that we keep talking about is carriers are focused on driving more revenue, and in doing that, they really begin to drive into how are they doing it through brand fares? How are they doing it through the ancillaries? And then how are they doing that through more personalization? And that's the first step of essentially driving more revenue. The second step is actually how do you fulfill that? How do you actually deliver those goods and services, which is really the brand promise that you're essentially selling? And with that, it ties very well into what we're talking about relative to distribution in general, indirect and direct, and how does that transition into the core PSS system. And those are the things, as we continue to look at where we stand today, what the customers are looking for. We're having really good conversations about that. And they understand that they need technology partners, specifically us. And a few other key individuals that are out there, groups that are out there, are really the ones that can do this. So I would say those conversations have been good. And the other thing that I will share is we're at a point in time where a lot of carriers are just trying to figure out what they're going to do next, sort of this test-and-learn environment. And this comes back to technology and the agility and flexibility of what needs to take place there. So a lot of good conversations, and it's really driving our thought process relative to where we want to take the organization. And a lot of this is what we've been working on. As it relates to Dave Shirk and bringing him on board. When we were recruiting for the role, we have a number of subject matter experts within the business that really do understand airlines, understand the operations side, which could be on crew or could be on flight plan management. We look at the commercial side of the equation and we get into a number of the components that we have there. For us and looking into the future, it is the balance of really knowing product management, understanding product development and taking that to a higher level. When we found Dave, one of the things that really did stick out for me and for others is his roles in specific organizations where he's had very large portfolios, and I mean over $1 billion of portfolios with many products, and the ability to essentially drive through that and understand essentially what are the core offerings? So how do we make sure that we have teams aligned to deliver? And how do you do that's really efficient in what's taking place? So that's a mindset which I think is going to be very additive to the organization in how we do it. We have a lot of good talent in place. But again, I'm looking at how do we continue to balance the organization with talent across the board that will allow us to continue to leverage the opportunities that I just actually kicked off my comments with you.

And next, we move on to Brian Essex with Morgan Stanley.

Sean, really good points on having visibility by -- both into the direct and indirect markets. And I was wondering if you can maybe elaborate a little bit in terms of what your conversations are with the carriers and how you kind of leverage that and how it might influence the pricing that you have with them.

Yes, good question. The facts -- I always -- the important thing that I always look at, and this is what is helpful when you have the discussion with airline executives, and that is to go into just the revenue performance. And this is something that we have shared, is when you look at revenue performance, and this in all regions of the world, you have found that unit revenues have been under pressure. And as we look at the opportunity going forward, we know that airlines have been very focused on the direct channel and how do they continue to drive revenue. And that has been, with the introduction of ancillaries -- and a lot of people on the branded fare side of the equation are still rolling that out. That's why we keep talking about it as it relates to what's happening in the shopping in the shopping complex because of the trends that we see here. When you understand essentially the amount of traffic that can be driven or bookings that can be driven through the direct channel, there are people that want to shop, there are people that are booking through corporate travel managers. And in doing that, this is why it's important to think about the indirect channel and making sure essentially what is being sold and provided through the direct channel can be provided through the indirect channel. And those conversations, I would say, are very -- from where we sit today and where we were 3 or 4 years ago, they're very engaging. And the pressure continues to be on us relative to technology development and then also how we think about driving that into the core PSS, if it's a PSS that we have or it's one of our competitor PSSs.

Got it. Maybe a little bit of color on Sabre Red as you approach the GA date. How are your conversations with travel management companies progressing? And you had a nice early win there with Flight Centre. Any other incremental opportunities in the pipeline? And maybe a little bit of color in terms of how the pricing for Sabre Red is going to compare with kind of what you have averaged over your platform currently?

Yes. A couple of things on that one. So first, on how really -- as people are testing Sabre Red right now and they're looking at the capabilities of the product, it is something that there is a lot of interest, and we're spending a lot of time with a lot of different agencies out there. And that will play out, certainly out through the course of their year relative to what's happening relative to new business taken place. But what I will share with you is that we are engaged in a number of conversations, and people like the products and the capability that essentially come with Sabre Red. As it relates to the pricing side of the equation, first and foremost, the first thing that we focus on is -- and it goes back -- even on the OTA, what's happening on OTAs as well as the brick-and-mortar. It's all about how they continue to grow their business, I'm speaking the agency side. And many of the products and the capabilities within Sabre Red are going to allow agencies around the world to continue to maximize profits relative to the contracts that they have, be it with airlines or hotels. The other thing that we'll do is we'll look at it from a modular component. There's a number of APIs. And remember how this is built, it's built relative to the platform, and APIs essentially are being used to develop this. We're looking at, relative to it, if you're not using Sabre Red, you can actually get access to API. And there's revenue-generation opportunities there. So not only from the Sabre Red perspective, but just the capabilities that we have developed and how they can actually be absorbed into their booking tools.

And next, we'll move on to Brad Erickson with Pacific Crest Securities.

First, just a quick one on the implementation. And I may have missed this, so I apologize if this is a repeat. But can you just provide any updates to the other -- the delayed implementations that weighed on the growth? I guess it was Copa, airberlin and you mentioned LATAM. But just curious if you can give any update there.

Yes. Nothing in the quarter 1. But Brad, as you said, as we've talked earlier for 2017, we -- Copa is not being implemented. They've said that they would do that earliest in 2018 as they changed priorities some time ago. They are using some of our other software products, including Intelligent Exchange, which gives them kind of real time operational data and efficiencies across multiple different, disparate databases and systems. So they're getting the benefit of that. But nothing in '17 from them and earliest would be '18. But we'd still have to work with them on any kind of thing definitively. Second, LATAM, a big airline, LATAM portion, the Brazilian airline. They run our system on land. They're converging to one, will be beginning of 2018. We and they consulted to push that into the first half of '18 rather than the back end of '17 to make sure that they could integrate disparate royalty programs essentially together. So that's example of working with them. So that's on track. We're working hard and doing implementation with them across this year. And airberlin, as we said, we had pushed back from earlier to the back half, late this year and earliest on airberlin. Of course, we'll have to stay posted on how that develops as they work through -- continue to work through how they're restructuring the airline, which is essentially what affected that original plan, where both the number of passengers boarded have gone down materially as they took some planes and sold them or leased them off to Lufthansa, and they're working to form a joint venture around kind of commercial -- or excuse me, a charter tourist business. So more to come there.

Got it. And then second, can you just remind us if there's any sort of a target for, I guess, we'd call it maintenance CapEx as a percentage of revenue, excluding some of these discrete investments being made around product enhancements in network operations, et cetera?

Yes. There isn't specific -- we don't give that level of granularity. Again, the -- in terms of our CapEx, the GAAP CapEx is internally used software that's capitalized. The capitalized implementation cost, which are specific to primarily just carriers on PSS reservations are onetime when you do a big implementation. The combination of those 2 are adjusted CapEx. Within where we invest for general maintenance to keep systems up and running, we don't break out that level of granularity.

And with that, I would like to turn the call back to Mr. Menke for closing remarks.

Great. Thank you very much. And again, I want to thank everybody for joining the call this morning. As you can see, we feel very good about the kickoff of the year, first quarter results. Many of the initiatives that we had outlined to all of you are well underway, and we continue to work aggressively towards what needs to be accomplished. And we look forward to updating you more on our accomplishments in the future. Thank you.

And that will conclude today's call.