Travelport Worldwide's (TVPT) CEO Gordon Wilson on Q2 2016 Results - Earnings Call Transcript

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Travelport Worldwide (NYSE:TVPT)

Q2 2016 Earnings Conference Call

August 04, 2016 09:00 AM ET


Maj Nazir - Head of IR

Gordon Wilson - President and CEO

Bernard Bot - CFO


John King - Bank of America

Ryan Cary - Jefferies

David Togut - Evercore ISI

Brian Essex - Morgan Stanley

Matthew Broome - Cowen and Company

Matthew Pfau - William Blair

Ashish Sabadra - Deutsche Bank

Rodney Hall - SunTrust


Hello, and welcome to the Travelport Second Quarter 2016 Earnings Conference Call. All participants will be listen-only mode. There will be a question-and-answer session for analysts at the end of today's presentation. [Operator Instructions] Please note that this conference is being recorded.

Now, I would like to turn the conference over to Maj Nazir, Head of Investor Relations for Travelport.

Maj Nazir

Thank you very much, William, and good morning, everyone. Many thanks for joining us on our second quarter earnings conference call. Earlier this morning, we issued the earnings press release, which together with the slide presentation accompanying today's prepared remarks, are available on our website at

Following the completion of today's call, a replay will also be available on our website, where it will remain for a period of one year. Participating today are Gordon Wilson, our President and Chief Executive Officer; and Bernard Bot, our Chief Financial Officer.

Before we begin, we'd like to note that in light of the SEC’s recent additional guidance on the use of non-GAAP financial measures, we’ve made a few changes to our press release and presentation of our financial results. Throughout today’s call, we will discuss certain non-GAAP financial measures. In our earnings press release, slides accompanying this webcast and our filings with the SEC, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures as required by the SEC.

I’d also like to remind participants that the following discussion and responses to your questions reflect management's views only as of today and will include forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from statements made on today's conference call. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC.

Thank you again for joining. And with that, let me now turn the call over to Gordon.

Gordon Wilson

Thank you, Maj. Hello everyone and thank you for joining us on the call this morning to review our second quarter 2016 results. Over the next few slides, I’ll walk you through the key financial and operating highlights of the quarter, then will hand it to our CFO, Bernard Bot, to give you some more in-depth information on the results. And I’ll then come back to summarize before we take your questions.

I'm starting with slide four and let me walk you through the key takeaways from our results. Travelport delivered strong revenue growth of 9% this quarter, with particularly impressive results from our international regions where revenue grew by 15%. Both our Air and our Beyond Air businesses continue to benefit from our product innovations, which are differentiating Travelport in the marketplace. And these in turn are driving new customer wins, which, of course, will bring higher transaction volumes and revenues once implemented.

Adjusted EBITDA for the quarter was up 1% on a reported basis, actually saw a 9% increase year-over-year before it was adversely impacted by a provision that we had to make in full for $11 million, related to one of our travel agency customer has initiated insolvency proceedings last month in somewhat tragic and unique circumstances. I’ll discuss this in greater detail shortly.

Notwithstanding this item, current performance within our business is such that today, we’re reiterating our full-year revenue and adjusted EBITDA target. In June, we successfully repriced our entire debt. This will equate to annualized pretax interest savings of around $18 million, and we expect to see some of this benefit in 2016. Therefore, we are raising our expectations for just net income and adjusted free cash flow.

On to the key financial highlights then on slide five. I’ve already mentioned our second quarter top-line results of 9% growth in revenue to $606 million for the quarter. With a net revenue from our distribution business, what we term our travel commerce platform, grew by 10% in the quarter. And this, of course, was achieved on a stable risk-reported segment of volume year-over-year, and it’s largely organic.

Inorganic activities, essentially our mobile business acquired in July last year contributed around 1% point. To give you some further color, distribution revenue growth is made up of 6% increase in our Air transaction revenues and a 22% increase in our Beyond Air revenues. Our technology services business is relatively stable at $32 million of revenue for the quarter, up 1% year-over-year. Overall, therefore, we were quite pleased with our revenue performance for quarter two.

Turning to adjusted EBITDA, this vast revenue growth of 9% before a rather unexpected event came to our attention. In the latter half of July, Travelport was made aware of circumstances related to a large traveling agency customer called Unister, which is based in Germany, which has filed for insolvency protection. This followed a series of events which is precipitated by the tragic deaths of some of its leading executives and advisors, including its CEO light airplane crash.

Almost exactly a year ago, we actually did a long-term agreements of conversion with Unister, which is as typical within our industry included a pre-paid balance tied to volume commitments over a forward contract period. As a result of the agency filing for insolvency protection, we can no longer be reasonably assured that sufficient economic benefits will return to Travelport that justifies holding that assets on our balance sheet.

We, therefore, fully provided for the remaining pre-paid incentive balance in the order of $10.7 million. The impact of this event was to reduce our adjusted EBITDA growth of 9% before the provision to growth of 1% in the quarter post the provision. Adjusted net income and adjusted income per share for a follow through effects from the provision which aftertax is raised around $8.5 million.

Hence both metrics, as reported, are essentially flat year-over-year rather than reflecting our underlying growth. We believe we’ve acted prudently in regard with what we considered to be a unique and unprecedented set of circumstances. Finally, in terms of our results, adjusted free cash flow for the quarter was good at $52 million, which is marginally lower than last year only because of a change in the timing of interest payments in the quarter, as part of our debt repricing [indiscernible] and more of this later also.

Turning to slide six, we achieved our revenue growth on flat volumes, largely due to the continued success our ability to getting more revenue per transaction. This indicator which we call RevPas showed year-over-year growth of 10% to an average of $6.61 per reported segment. Around half of this improvement came from our Air business, thanks to strong underlying pricing, positive mix effects and continued industry-leading performance in airline merchandizing.

Travelport has been out in the marketplace for a couple of years already with its state-of-the-art selling system called SmartPoint, which is now in its seventh iteration, and which enables the sale of airline fares, common and ancillary, as well as improved tax rents of hotel, car and other ground products. Our mix clearly benefiting from the experience of pioneering this capability and approaches. The other half of our RevPas growth was driven by our performance in Beyond Air, with payments contributing most to the increased, followed higher mobile and hospitality revenues.

From an Air market share perspective, in terms of our international share, we’ve held our own this quarter with stable share. Our 3% growth in segment volume has driven a 15% increase in international revenues, and our international volume is now some 60% of our total.

A little more regional color on our international business where we’re seeing growth in full of Europe, Latin America, Asia-Pacific and Canada. So, Europe first. We grew the segments booked and revenue earned in both Air and Beyond Air, with overall revenue growing in Europe by 22% with overall second growth of 2%. We grew Air market share in France, Spain and Germany, and we saw strong gains in Russia while it remained in the United Kingdom.

Travelport has plans in place to expand our commercial share across Europe and in this regard, announced in the last few days, a new contractor growth through with Expedia in Europe, as well as a contract with a new customer called Travex, which is a major desk based online travel agency which operates in 29 countries and owns brands such as CheapTickets, Vayama and BudgetAir.

In Asia-Pacific, both revenue and sales growth accelerated from the third quarter, and again, we achieved double-digit Air booking growth in strategically important India and Hong Kong markets, as well as a 25% growth in bookings in South Korea, which is a continuation of a ramp up in transaction levels at several recently converted travel agency customers.

I am also delighted to say that we’ve commenced transactional activity with India’s second largest online travel agency called, another major new customer for Travelport. In Mid-East and Africa, we continue to take market share in each of the five largest growth countries in the region. In Latin America, revenue grew by double digit for the consecutive quarter, with strong segment volume growth of 7%.

We continue to build upon our recent strength in the region and we grew Air share for the third consecutive quarter in Latin America with 150 basis points increase.

And we grew our air bookings ahead of market rates in all of Brazil, Chile, Columbia and Mexico. And we’ve been talking about a significant commercial win we had a few years ago, a year ago with Despegar, an online travel agency in Latin America. Since we announced that deal, we’ve now tripled our share of wallet with that business and we added a further significant win in the region,, which is based in Argentina.

Let me now to turn to the other piece of the piece, which of course is the United States. Well not surprise to anyone to know that our reported segment volume in this market was down 6% year over year. Our well documented rolloff of the US domestic volume with Orbitz accounted for 5 percentage points of this. As previously advised, we will include maturation of the volumes towards the end of this year. But I want to draw to your attention the fact that reflective of the relative value of this business, our revenues in the United States were down only 2% year-over-year. The good news is that net of the Orbitz impact from a revenue perspective, we were slightly up, which bodes well for the future.

Looking to slide 7, I’d like to show a number of recent development in our air business. As previously discussed, our air transaction revenue was up 6% year-over-year. This was in part achieved due to our pricing structure on away bookings, which is enabled by our balanced geographical footprint, especially internationally. Away bookings grew 1.4% in the quarter, now accounting for 66% of our air revenues.

Another piece of our air revenue growth is the airline merchandising, where we’re a clear industry leader. We added further to the differentiation we offer in the space by adding more carriers, so we now have 170 airlines implemented with more than 200 sites in total, all able to sell their full range of [Technical Difficulty] focused primarily on the domestic South African market.

We are also live with Scandinavian Airlines and we added JetBlue to our roster of North American airlines with merchandising capabilities. In terms of recent signings we will implement shortly, I would like to highlight two deals that illustrate the value that we bring to meet the wider needs of our airline customers

First, [Technical Difficulty] not only enhancing their participation to increase the use of our merchandising solutions, but also signing up for our mobile traveler solutions. Similarly, we were pleased that after the large Middle Eastern airlines, Emirates, has reaffirmed and extended its full content distribution with it, but it has also signed for initial rollout of branding airline merchandising. This will give the award winning airline the capability to directly promote its brands, ancillaries and associated upsell options for the first time with any GDF for the travel agency community.

At the same time, Travelport has signed an extension of our longstanding IT or technology services agreement with Emirates, We provide another mission-critical service to that airline, using this direct channels, working in conjunction with Emirates. These products including pricing, our shopping capabilities, our first branding and innovation and inspiring that for shopping traveler options. Emirates, like Delta, has issued the [Technical Difficulty] where revenue grew 22%.

The biggest individual driver of this performance was eNett, our B2B payments business which grew in revenue terms by 85% in quarter two, having grown to 76% in quarter one. As a reminder, eNett [indiscernible].

This business is now bringing in to scale nicely, in line with our plans with a top line growth providing operating leverage for EBITDA margin percentage, which is now in double digits. We have a strong sense for the trajectory for the remainder for the year based on the continued investments we’re making in this product and its go to market capabilities. We now anticipate eNett’s full year net revenue between the range of 145 million to 155 million. This would represent growth of reported rates of 58% to 68% versus 92 million in revenue in eNett in 2015. We are very excited about the continued traction we’re achieving in the B2B payments base in travel.

Other drivers of Beyond Air growth include detachment to the ground, product bookings to airline tickets. And important of growing airline ticket transaction, we are pleased to have maintained the same 48% detachment rate as the prior year. However, which we believe to be industry leading by a significant margin.

During the quarter, we further strengthened our hotel content leadership with additional content and rates added to our inventory in order to expand quality. Including the content, there is lots of hotels for Australia and New Zealand’s largest online travel agency. In mobile commerce, customer downloads to actually developed airlines and other travel service providers grew by 10% in the quarter. We’ve added new customers’ wins in to Air Mexico, which I’ve already mentioned. We also added co-pay airlines of Panama.

One of the largest online travel agencies in Europe has started using our Engage product, which is part in our mobile platform and aiming that to push to messages to customers that they have travel experience. And with one of our longstanding customers for mobile services, easyJet, we added an innovative new enhancements to its mobile apps with inclusion of Apple Pay. Consumers can now use this method to pay alongside the more traditional credit and debit card providers.

Finally, in Beyond Air, we are further enhancing our position in the provision of mobile corporate travel applications by increasing our investments in locomotive, where we’ve effectively bought out the shareholders and to take this business to its next level of growth and on an international basis from its Australian home whilst we also integrated into another mobile capability. Locomotive machine is to improve the corporate travel booking and management experience, building consumer grade manage travel applications to the corporate traveler, [indiscernible] whilst integrating all of Travelport’s unique contact for airlines, car rental and hotels. Our ongoing efforts in this space [indiscernible] on the mobile devices.

All in all, therefore, Beyond Air continues to differentiate Travelport as to drive Travelport’s platform revenue and growth. We feel we’re progressing well against our stated goal of growing this part of our business to $1 billion in revenue by 2020.

So with that, let me turn the call over to Bernard to provide an overview of our financial performance before coming back with a few closing remarks.

Bernard Bot

Thank you, Gordon. Hello, everyone. Thank you for joining us today. On to slide 10, which shows a summarized income statement. Gordon touched on the key drivers of our 9% revenue growth, so let me start with our commission expense, which including amortization of customer loyalty payments, increased $34 million or 30% year-over-year. The three main factors I’d say here, but first is agent incentives, which increased as a result of normal rate inflation and mix effects. The second is the impact of strong growth and thirdly, we absorbed in full the aforementioned provision of $11 million for prepaid incentive payments made to Unister.

Group technology costs were up 10% compared to the prior year, due to incremental expense, following the vertical integration of our distributors in Japan and Russia and development costs related to our technology services. Continuing down to SG&A costs, which were 8 million or 8% higher year-on-year, this was largely driven by incremental wage costs related to the expansion of our digital businesses as well as increased headcount and wage inflation. This was offset by positive movements in our results on foreign exchange hedges.

Moving to adjusted EBITDA, this increased by 3 million or 1% year-over-year with around 30 million of growth in the business, being offset by the 11 million Unister provision. Adjusted operating income was similarly impacted, up 3 million or 3% year-over-year. GAAP operating income however declined by 25 million to 38 million. This was mainly due to a 14 million unrealized loss from exchange derivative in the quarter, while we benefited from a 60 million unrealized gain in the year before.

Taking a step back, when I look at the quarter to quarter growth profile of our adjusted EBITDA in 2016, much of it will come from the first three quarters. This is due in part to the timing of our acquisitions and the ongoing investments being made in these businesses as well as the timing of the introduction of new value propositions such as rich content and branding.

If you turn to slide 11, you will see the bottom half of our income statement. Interest expenses increased slightly year-over-year as we absorbed certain costs related to our debt repricing under this line. The interest saving that resulted from our debt repricing in June will only materially affect this second half of the year.

Moving down to taxes, this increase reflects an increase in the tax rate of our international operation in line with our expectation. On an adjusted basis, taxes were 60 million year to date. This is impacted by saving effects that we should accept taxes to be slightly higher in the second half of the year. For completeness, our GAAP taxes were 4 million in the quarter and 12 million for the half year, reflecting the impact of adjusting items.

If we look at the free continuation between adjusted net income and GAAP net income, amortization of intangible assets decreased by 5 million year over year, as the useful lives expired under the portion of our assets. The remaining variance in the impact of unrealized derivatives which are highlighted on the previous slide together with an additional 6 million of unrealized losses and to the mark to market of our interest rate swaps, consistent with lower US interest rate expectations during the quarter.

Turning to slide 12, and you will find a summary of our cash flows of the second quarter of 2016. Adjusted free cash flow declined 2 million year over year to 52 million. The principal driver of this variance was a 14 million increase in interest payments in the second quarter associated with our debt repricing. This 14 million, which was previously budgeted for August was paid only in June and it's just purely a matter of fading and accordingly, our third quarter cash interest payment will be lower by similar amount.

Moving down the table for this free cash flow, after adjusting items of 10 million interest payment for corporate and restructuring costs, as well as litigation and related costs. We also incurred 15 million costs related to our acquisition of Galileo, Japan, our third-party distributor there. And other costs related to increases in our controlling interest and locomotives, together with the costs associated with our debt repricing.

Onto slide 13, net debt at the end of the quarter was stable at 2.3 billion, with net debt to trailing 12 month adjusted EBITDA of 4.1 times. Which has slightly improved from the 2015 year end in adjusted EBITDA. We're targeting a leverage of under four times by the end of this year.

As you may be aware, by now, we successfully completed a repricing of our term loans in June, which has resulted in an interest rate reduction of 75 basis points. Our rate is now LIBOR +4%, down from LIBOR +4.75%, with the LIBOR floor of 1%, unchanged. This equates to an annualized pre-tax saving in both book and cash interest of around 80 million and we expect to see the benefit of this kick in in the second half of this year.

Other key features are unchanged, including no significant maturities on the year 2021. We continue to balance the need of our business, with expanding opportunities for debt production, towards previously stated leverage targets and this will continue to be a priority in our capital allocation decision making.

With that, I will now hand the call to Gordon for some closing remarks before we take your questions.

Gordon Wilson

Thanks, Bernard. So, that brings you to our revised guidance for the full year 2016. Our performance in the first half year and to date, we feel confident to reiterate and raise our guidance across certain key metrics for the full year. Now, certainly in fact of the macroeconomic environment impacted by uncertainty and certain destabilization cast by Brexit based in the UK, events in Turkey [Technical Difficulty] give us the confidence to reaffirm our revenue and adjusted EBITDA guidance to be in the range of 2.35 billion to 2.4 billion of revenue after taking 565 million and 580 million for adjusted EBITDA, despite reversion taken this quarter.

[Technical Difficulty] moreover, as a result of the repricing of our term loans in June, we feel confident to increase our adjusted net income guidance of between 145 million and 155 million. In certain, this equates to raise guidance for adjusted earnings per share of $1.16 and $1.24 on a fully diluted basis for the year. We now expect [Technical Difficulty] to be between 150 million and 170 million, representing growth of between 12% and 27% as compared to 2015.

So in conclusion, while disappointed with our adjusted EBITDA, net income for the quarter were suppressed by the provision we have taken in full related to Unister, if you look at our overall increase in momentum, we are encouraged by our performance. We signed [Technical Difficulty] in the second half of this year and into 2017, we continue to lead in merchandise and we're growing internationally, [Technical Difficulty] is growing nicely and showing margin leverage at this scale.

[Technical Difficulty] and I look forward to continue these benefits for the remainder of 2016 and beyond.

And with that, I'll now pass the call back to William, our operator, and open the lines for any questions.

Question-and-Answer Session


[Operator Instructions] Our first question is from John King with Bank of America. Please go ahead.

John King

Great. Thanks very much for taking the questions. So, this one will just be on the outlook for North America, if you can just speak to the segment growth you're expecting in the second half, perhaps Orbitz and non-Orbitz, and maybe you want to comment slightly on the industry outlook there, given obviously there's been lagging weakness in the corporate travel market in the second half.

And then the second one was just around Emirates, just, if you could just clarify what you're expecting there? Is there an opportunity for you to grow some non-segment revenue that - such as you have with Delta?

And perhaps the last thing, circling back on market share internationally, I guess there's been some puts and takes with you having some further announcements with Expedia and then probably competitors taking some share back with flights. So net-net where do you think you'll stand with share over the next few quarters internationally? Thanks.

Gordon Wilson

Okay. Thanks, John. Let me deal with, maybe, I'll start with the Emirates question first and move onto the [Technical Difficulty] the extension of an existing deal, we had, we provide all their [Technical Difficulty]. Now, that revenue stream for them is real potential to grow, because the model is essentially a transaction based one. So Emirates continues to sort of add extra pace and I think double digit number of A380 this year into its fleet, et cetera and because obviously, the search and shopping goes on to sort of fill the planes. So that will appear on our technological services, [Technical Difficulty]

So, it won't be a huge variance on where we are, but it's not in that business. Let me into the distribution side and you asked first of all, the United States, the interesting thing or the good thing for us is that, in the quarter, our volume inflation was down 12% in quarter two, our volume was down 6%. I think you can see it will be down little less than 6% in quarter three and this should be the stable marginally positive in quarter 4, depending on what the market does. So the question about the market, the US market from that perspective was flat year over year quarter two, so you don't have that in the market. It wasn't negative to have negative growth.

Now, some of that may well be seasonal, some of it may also be some softness in the corporate market, but as I said in the last earnings call, I think the top line in the corporate market is kind of certain factors, such as energy and to a degree banking as opposed to across the board. And so, I think it's actually pretty gloomy perspective on corporate travel. I just think it depends on your mix of corporate travel and business and we're pleased with that we've signed a couple of big corporate accounts, central businesses in the United States. And so I think we're quite positive about where our corporate travel business will be doing. But I think the impact will be in the third quarter something more for the 2017 when we fully run Orbitz.

Internationally, as was mentioned in Merrimac's call, share was basically flat year-over-year internationally. I think to give you further color by region, which I know people would be interested in. In Europe, the GDF market grew by 2.7% and within Europe, Western European grew by 4%, which is actually quite encouraging, but that was offset by decline in Eastern Europe, which is largely in Russia and Ukraine. [Technical Difficulty] France, Germany, Spain and the UK was basically stable year over year. And Asia Pacific, it grew by 15%, August 15, 14.8%, but I think the [Technical Difficulty] We're actually very pleased with our growth in that part of the world, in Hong Kong, India and South Korea, where we do have this our bookings growing double digit and we're also very pleased with our growth in Indonesia, which is a very big market.

So, overall, if you look at Asia, Asia Pacific in the first half, we grew at 5.5%, share was stable and we think markets like Indonesia, like India, et cetera, will be looking to show growth through the remainder of the year. We're in a good position to capture some of the new wins that I've mentioned in India.

In Latin America, the market grew 2.9%, in volume terms, we grew over twice the market rate and we've grown in all of Argentina, Brazil, Columbia, Peru, Chile and Mexico, two consecutive quarters of share gains there and I think we can see that, in that part of the world as we implement that.

So I hope I've given you a kind of flavor to where we think we're going. Yes, there is some less optimistic economic headwind, but do bear in mind again, we're a transaction based business, there is lots of scope to stimulate demand with price, we're beginning to see that with airlines, we expect the transactional activity.

John King

That's very clear. Thank you.


Our next question comes from Jason Kupferberg with Jefferies. Please go ahead.

Ryan Cary

Hi, guys. This is Ryan Cary calling in for Jason. As we think about the annualized $18 million in interest expense savings, starting in the back half of '16, should we assume roughly $9 million benefit this year? Using rough math, it equates for most of the raise at the midpoint. Is that about the right way to think about it? And so extra repricing benefit, we should look at the guide as roughly in line with previous expectations?

Gordon Wilson

So yes, the rate increase in the second half should be around 9.3 variant, but bear in mind that we've also shown some fees in the quarter, around 2 million and then obviously there is a tax impact of let's say 1.5 million issued, down to net income. So that's more around a, let's say, 6 million impact on net income.

Ryan Cary

Great, thanks. And how should we be thinking about RevPas growth for the remainder of the year? I only ask because in the back half of the year, you have much tougher comps, and you begin to anniversary the benefit from rich content branding, so do you think the benefit from other positive drivers, both in Air and Beyond Air, are enough to keep up the double digit growth we've seen so far in 2016?

Gordon Wilson

[Technical Difficulty] merchandising in July at 50-50. There will be some lapping of that in the third quarter, although, I would expect that in my remarks, we are adding new airlines in there all the time. So I think the natural, the RevPas growth in Air is probably in rates. The biggest factor of Beyond Air, is actually pretty solid, going forward. So I think you may see us not quite set level that we are at action able to the rate of it, but I think we'll be normalized in the mid-single digit rate which is our assumption for guidance.

Ryan Cary

And just a last one for me, it's nice to see the very strong growth in the end of the quarter, and then the revenue projections back to the $150 million range. I hate to get ahead of myself. but any reason the momentum in the business can't continue to grow at that previous 50% year over year expectations? And just last one, I saw a MasterCard announce a virtual card deal with Amadeus, do you view that as incremental competition?

Gordon Wilson

Not really, From what I can understand of that deal, I mean, it’s a referral deal, it's not actually doing what we do with a eNett. It’s very interesting, haven’t seen anybody else put them in actual numbers of what they could have payment. So, it’s very hard to tell what the real import of any these announcements about payments capabilities are actually driving. And certainly, for future growth, we're very optimistic about where we are and I think we've got great momentum we've got great line of sight. I think what we discussed on the base before, if you get a customer on, you can face 18 months before the customer really ramps up and you’re beginning to see some of that in the numbers you've got eNett, and I think that will continue and that sort of level going forward.


Our next question comes from David Togut with Evercore ISI. Please go ahead.

David Togut

Just a point clarification, Bernard, did you mention the $11 million write off related to Unister flowed through the commission line in the quarter?

Bernard Bot

Yes, that's correct. Cost of revenue, it’s a prepayment, it’s not a COP that’s why I spoke to that one.

David Togut

Got it. So, more broadly, could you comment on trends in commissions and how you see commissions trending going forward? Are you seeing your competitors being more aggressive in terms of using commissions, incentives to win bookings from large travel agents?

Bernard Bot

Yes, let's say no, I think that the if you I think is the field down in this quarter I would say there was Unister in there, if you then on the line, what the travel incentive is doing, at the normal rate of low single digit and we're not seeing any increase in that rate over the quarters?

Gordon Wilson

That's an odd rate, David I mean we do see our competitors with certain accounts with certain geographies being very direct in the marketplace, we said many times but try not to but compete the basis of what we think is our superior content, et cetera. But we are in a competitive marketplace, we won’t be beaten on price where the business makes sense for us to win. But the good news is that so far, we haven't seen any step change in the level of the commission payment that we're making versus the norm we’ve had for the last number of quarters.

David Togut

Understood. If we shift to RevPas just for air, can you give us a sense of what RevPas would be just for Air segment bookings on an apples-to-apples basis?

Gordon Wilson

And what you mean by apples to apples?

David Togut

For example, if we just look at year-over-year trends in air pricing, if you were to adjust for, mix, way versus domestic. If we just look at US, US Air RevPas versus international Air RevPas?

Gordon Wilson

We just clarified our numbers, the actual Rocastle numbers David, do you mean what’s the competitive pieces are?

David Togut

I'm sorry maybe I missed that I was just wondering I will be looking for apples to apples trends and pricing but I must have missed that in the release. I'm just shifting gears once we get past the Orbitz impact, once we lap the Orbitz impact at the end of this year what you see as a sustainable organic revenue growth of the business all in, in ‘17 and beyond?

Gordon Wilson

We are not giving guidance for ‘17 at this point in time, David. But I think what we may have talked about is how most of the going to be beyond that natural Air growth is kind of mid to single digits growth for Air. So if you put on those together and we keep growing beyond what we are doing, I think you kind of get to sort of where we think we'll be going there not going to give you guidance today.

Bernard Bot

Yes, maybe David to your prior question, trying to see if I’ve understood it, if you get a RevPas growth of 10% as Gordon indicated it’s about 5% it's related to Air RevPas growth and in that obviously we have rich content blending which is contributing some mix factors. So I think also as Gordon alluded to you is probably more in the 2% to 3% as an ongoing rate compared to the 5% we seen in this quarter.


Our next question comes from Brian Essex with Morgan Stanley. Please go ahead.

Brian Essex

I was wondering if I could dig in a little bit on eNett, obviously strong numbers off strong both off the smaller numbers, but any indication that you can give of the ramp that we saw in the quarter? How many customers contributed to that ramp, and how much visibility you have in the pipeline in the remainder of the year? What I'm getting to is if you take the $38 million or so run rate and just flat line it for the rest of the year, you get somewhere in the order of close to the mid-range in guidance. so just to make sure that we understand some of the core drivers, because I think in the past, investors have gotten a little bit over their skis in that regard. Just trying to get some manageable, reasonable expectations with regard to the trajectory and rate of growth and the visibility you have in that business.

Gordon Wilson

Yes, that’s a good question Ryan, and you’re quite right, we got better as a business [indiscernible] giving the guidance we have for the end of the year revenue numbers for eNett. As customer base is growing all the time as customer are now in the hundreds but the variance within that is large and small customers but biggest driver is with the large customers gaining more share for it. And I think [indiscernible] which is why our synergy to forecast the business has actually gone better, which is why we are getting from confident about the numbers that we’ve given. The other factor is as we add more currencies into eNett [indiscernible] relative FX cadence that it provides to customers that use the markup and that’s beyond the kind of [indiscernible] we actually held customers reduce their cost in terms of its charges which is held a lot with a more currency we are working on about three additional I should major currencies which are important to customers as we speak.

Brian Essex

Great. Well, that's helpful. And, can you comment with regard to the profitability of eNett at this point? Is it basically a self-sufficient growth engine or are you needing to spend some of the upside you get on the remainder of the business? Both Air and non-Air? To invest in the growth of eNett at this point?

Gordon Wilson

If I understand your question correctly, what we are investing we are investing eNett in eNett, that answered your question, it’s not there at this point in time. So profit it’ generating has been continued to 2013, as I mentioned in my remarks, it’s been a single-digit EBITDA percentage margin business, it's now reached the double-digit [indiscernible] investments we are making in go to market and in product capabilities. So it is not in itself it is not completely investment beyond their merits focus what is this low margin business at this point in the rest of business why kind of know overall with EBITDA margin is basically flat off to one side, because the fact the lower margin business for the rest of the company.

Brian Essex

Yes, understood. That's very helpful. Do you think at some point you might break that out, so we understand the profitability of the core Travelport business versus eNett?

Gordon Wilson

Look that is only 5% of, 5%, 6% of revenue of eNett at the movement. So I think way to go before we would do that and obviously show eNett is benefiting a great deal from sort of [indiscernible].


Our next question comes from Matthew Broome with Cowen and Company. Please go ahead.

Matthew Broome

I just have a couple of Brexit questions, I guess. Firstly, everything in the exposure is pretty limited for Travelport, but, it seems like you are primarily taxed in the UK. Do you have any concerns with everything that's going on that the UK government might be forced to raise corporate taxes there, and how that might affect what your options would be? And the second Brexit question I had was just in terms of the legal structure of eNett, I know that there's a lot of concern about Brexit affecting financial institutions in the UK. Again, would that affect you at all, or do you have any information on that? That's it for me, thanks.

Gordon Wilson

Hi, Matthew, let me deal with the last point you’ve asked, [indiscernible] headquartered in Singapore as a business. The couple of issues ended our minority partner in the joint venture, the financial corridor for in the UK but they’ve also got their license to operate in Hong Kong. So the great thing about [indiscernible] very prudent easy to move around the world. So doesn't see any problems relating to eNett in that regard given how we structured the business. In terms of what the UK government is going to do, I’ll ask the Dutchman and what he thinks they’re going to do on their corporate tax.

Bernard Bot

I think we have a robust structure that focus on the UK were the rate is 20% and initially the past production that was to go down from 17%. Now, I think that this would be ill advised to increase the rate of tax if you want to encourage investment in the UK, so we're not going signals at them and at the rate of 20% is an indicator flat compared to some of the other European countries if you look at the established and also remember we have full interest deductibility in the UK which have helped form. So, no indications and as we stand in the attractive rate to have.

Gordon Wilson

And I think just to square the circle Matthew for other people maybe on the call, we announced when Brexit in the UK, [indiscernible] our revenues are already driven in US dollars, our reporting currency, the US dollar revenue it is eNett, [indiscernible] vast majority is more euro and whatever else and of course we've got a partial cost base in GDP and to people like me it’s become cheaper.


Our next is from Matthew Pfau with William Blair. Please go ahead.

Matthew Pfau

Just one for me. I wanted to drill in a bit more on the merchandising opportunity in terms of what's remaining out there. So you have roughly 200 customers signed up, if I'm correct, that's about half of the airlines that are on your platform. So, how should we think about that back half opportunity, are most of the larger airlines already implemented, and so the back half isn't as large, or is that incorrect?

Gordon Wilson

I think broadly speaking that’s fair, around about 60, 70% of our segment volume is now covered by the 200 airlines we’ve have signed up. So 40% of our volume to go, but some of those airline frankly don’t really benefit so much [indiscernible] they run their products and services. So there's a couple of outstanding big airlines we’ve been in active dialog, as we speak around the world and obviously it’s one of the things where success because when [indiscernible].

Matthew Pfau

Got it. And with the ones that are on, is there the opportunity to add more merchandising over time, that would help expand that opportunity as well?

Gordon Wilson

For sure, I mean that’s the one great thing about this business, the very moving piece, because airlines are working on how to do merchandising [indiscernible] and they’re changing that all the time. I think our last we mentioned that we got into tailored of this furthest and also so example we are pioneering with the division, what they put there,, special offer that they have particularly corporation, they have and on to the screen for the corporation [indiscernible] capability and that’s a long way to run yet and then they were also working on the hotel and car rental side, merchandise much of their content, so we are in the earlier days of this and it’s going to be a kind of [indiscernible].


[Operator Instructions] Next question comes from Ashish Sabadra with Deutsche Bank.

Ashish Sabadra

Good results. My question was more about macro, your competitor called out increased volatility in EMEA over the last one month. And, we've also seen, headlines are talking about pulling back capacity and corporate spending potentially could be cut back. How do you think about the growth in this environment? I just wonder if you can comment on that one.

Gordon Wilson

I think a Ashish, good morning first of all, as you know we tend to be kind of a factor or a load full of GDP growth, because GDP goes up and down and that just has an impact on the business. So what I tell you about capacity is that from what we see, both domestic and international capacity actually still growing ahead GDP even North America. Now it’s growing in the Middle East, it’s growing in Asia Pacific. Now in America there may have been an added switch of some capacity on the Transatlantic, but deployed elsewhere, so we founded with our footprint we’re kind of picking neutral as to where the capacity is going from capacity is still there. But in the European and African, domestic capacity is growing, much traction in GDP, although international capacity from Europe and Africa is actually growing slower. And in Latin America the opposite, with international capacity growing faster than GDP, which domestic capacity is growing slower. And you got carriers, the Gulf carriers, the Indian carriers are like the Chinese carriers who are continuing to add new airplanes and new routes, and they’re looking for [indiscernible]. So I think some kind of - a little bit slow down in capacity growth nothing is significantly concerning for us and as I mentioned in early remarks as an industry, the United States are the flat GDF market, international market bring down again I know that it's still growing in a quite nicely from an overall GDF volume effective and I don’t see that changing markedly.

Ashish Sabadra

Thanks for the color, that was helpful. Just on the Unister insolvency, would that affect your growth going forward? Was that material enough?

Gordon Wilson

Not really, I mean as a margin, we didn’t sign the contact with them in August last year and they just started putting some business long term agreement, we got [indiscernible] what we lost there and some of the things that I’ve mentioned today and couple of other ones as well. So it's going [indiscernible].

Ashish Sabadra

Thanks for that. And maybe one final question. this is a follow up question on an earlier question around the fleet center, there have been news articles on the fleet center Australia business, I was just wondering if you can comment on that, apparently those new articles are suggesting the contract might end in Q1 of 2017, I wonder if you can comment on it?

Gordon Wilson

I don't need to be all good about this, but I can't really comment on news speculation because there are confidentiality provisions that we have in our various agreements, wouldn’t been correct to talk about the specifics in any individual agreement especially if it's not anything that's material that we would hedge flow through the materiality requirement. But in the overall context of our business, there are also going to be wins and losses, the balance of our business is positive, we’ve got the forward momentum in the business, we have tens of thousands customers and many of you thought where and how consumers are progressively researching and booking their travel for business and lecture, which I think have great growth and perspective for serving going forward but I can't get drawn into talking about one particular client.


Our next question is from Rodney Hall with SunTrust. Please go ahead.

Rodney Hall

Lots of coverage, so maybe I could follow up on the mobile and maybe the corporate side. As we think about those opportunities and putting the assets in place, can we maybe talk about what spending or pieces that need to be put in place to grow those businesses further, and when we think about them being a more material impact to financials, as well as the RevPas metric? As we look out next year, I know you talked about signing a couple new customers, et cetera. Thanks.

Gordon Wilson

Yes, it's a great question. As you may know in our mobile space we've got a very significant amount of customer roster of airlines that we’ve designed, built and then run the mobile application results includes Singapore airlines, LatAm Airlines in South America, Etihad et cetera. So that is growing quite nicely what we [indiscernible] just sort of work with those customers to add more transaction into their mobile capabilities and we should not direct transaction, if you see what I mean, I'm talking about car rental and hotel and other things that we have coming [indiscernible] in the GDF. We are also working with a number of big TMC customers that at the earnings call, so I mentioned BCD and American Express business travel both of who have mobile apps which was developed by ourselves, and I think they will be a growing source of revenue for us and a growing source of customer base in the TMC. And the last leg which I today basically where we have providing locomotive state-of-the-art consumer grade called the travel booking experience building consumer-grade managed those kind of thing, which will be a major pull through of transaction business into this company. As we take that value proposition with TNT partners into corporation and to getting more call for travel chair in the areas of service which is kind of fastest growing area of the business and I think anybody that travelled on business or if you have got people working for you in their 20s, they would expect to be able to do things themselves on mobile including change your booking, repricing the booking et cetera and that will bring to market rate but it will have a pull through effect in our volume and transactions into Air and beyond that transacting fees.


There are no for the questions at this time I would like now turn the call back to Mr. Wilson.

Gordon Wilson

Thank you very much, William and thank you everybody for your time today and for your as ever impactful questions, we look forward to coming back and telling you how quarter three went for the company in due course.


The conference is now concluded, thank you for attending today's presentation, you may now disconnect.

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