What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-08 · 285 added, 133 removed, 388 unchanged (52% of the section changed)

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Items that are not allocated to our business segments are identified as corporate and primarily include stock-based compensation expense, litigation costs, corporate headcount-related costs and other items that are not identifiable with either one of our segments.

We decided in the second quarter of 2020 to accelerate the organizational changes we began in 2018 to address the changing travel landscape through a strategic realignment of our airline and agency-focused businesses to respond to the impacts of the COVID-19 pandemic on our business and cost structure.

Subsequent Events for further details of the organizational restructuring.

Recent Developments Affecting our Results of Operations

The travel industry continues to be adversely affected by the global health crisis due to the outbreak of the coronavirus ("COVID-19"), as well as by government directives that have been enacted to slow the spread of the virus.

As expected, this pandemic has had a material impact to our consolidated financial results in the first quarter of 2020, resulting in a material decrease in transaction-based revenue across all three of our business units.

Lower Travel Network volumes resulted in a material decline in incentive consideration costs, as expected, which was partially offset by higher bad debt expense due to the impact of the COVID-19 pandemic on the global economy and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard.

Given the market conditions as the result of COVID-19, we have responded with measures to increase our cash position through the suspension of dividends and share repurchases under the Share Repurchase Program, borrowing under our existing revolving credit facility, and the completion of debt offerings totaling $ 1,120 million.

See "—Liquidity and Capital Resources." Additionally, we have identified and are in the process of removing costs from the business in 2020.

As part of these cost reduction efforts, we are implementing several immediate actions with regard to our workforce and other costs during this difficult business climate.

These actions include :

• A temporary reduction in base compensation pay for our US-based salaried workforce, including a 25% reduction for our CEO, and Sabre will work with international employees on a country-by-country basis;

• A reduction in the cash retainer for members of our Board of Directors;

• Our 401(k) match program has been temporarily suspended for US-based employees;

• On a global basis, we are offering voluntary unpaid time off, voluntary severance and a voluntary early retirement program and in the second quarter of 2020 we furloughed approximately one-third of our workforce;

As expected, this pandemic has continued to have a material impact to our consolidated financial results in the second quarter of 2020, resulting in a material decrease in transaction-based revenue across all three of our business units over the prior year.

Additionally, our mix of transactions has shifted such that domestic bookings now exceed international bookings, negatively impacting revenue.

Revenue for the second quarter was negatively impacted by approximately $100 million resulting from increased cancellation activity beyond what was initially estimated.

Lower Travel Network volumes resulted in a material decline in incentive consideration costs, as expected, which was partially offset by a higher provision for expected credit losses due to the impact of the COVID-19 pandemic on the global economy and our customers and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard.

Given the market conditions as the result of COVID-19, as disclosed previously, we responded with measures to increase our cash position through the suspension of dividends and share repurchases under the Share Repurchase Program, borrowing under our existing revolving credit facility, and the completion of debt offerings totaling $1,120 million.

See "—Liquidity and Capital Resources." Additionally, we have taken the following actions with regard to our workforce and compensation programs as part of these cost reduction efforts :

• A temporary reduction in base compensation pay for our US-based salaried workforce, including a 25% reduction for our CEO, from March 16, 2020 through July 5, 2020;

• A temporary reduction in the cash retainer for members of our Board of Directors from March 16, 2020 through June 30, 2020;

• The temporary suspension of our 401(k) match program for US-based employees;

• Reductions in third-party contracting, vendor costs and other discretionary spending;

• An offering of voluntary unpaid time off, voluntary severance and a voluntary early retirement program in the first quarter of 2020;

• A temporary furlough of approximately one-third of our workforce during the second quarter of 2020;

• A right-sizing of our global organization through a reduction in force that impacted approximately 800 team members across 44 office locations.

This reduction is in addition to the separation of approximately 400 participants in voluntary severance and voluntary early retirement programs described above.

Subsequent Events for further details on this organizational restructuring.

In connection with these measures, we recorded a $48 million charge associated with these restructuring activities during the three months ended June 30, 2020 and $73 million during the six months ended June 30, 2020.

Restructuring Activities for further details on the costs incurred related to restructuring.

Additionally, to retain key talent in this highly volatile macro environment, we have taken the following specific actions related to our compensation programs which will impact our operating expenses:

• Replaced the revenue and adjusted earnings per share metrics in our 2020 annual incentive program with measures focused on expense management with payout capped at 50% of original targets, payable (if achieved) in December 2020;

• Amended the key strategic initiatives associated with the long-term performance-based cash incentive awards that are payable in March 2022;

• Awarded time-based restricted stock unit awards to executive and certain key employees on June 15, 2020, with 50% of the units vesting on the first and second anniversaries of the grant date;

• Awarded cash retention bonuses to certain key technology resources on June 15, 2020 in conjunction with our technology transformation initiatives payable upon the completion of two and three years of service.

We believe the ongoing effects of COVID-19 on our operations and global bookings will continue to have a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak.

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GAAP and adjusted basis for the year ended December 31, 2020 despite the cost saving measures described above.

Due to the impacts of the COVID-19 pandemic on our current and projected future results of operations, we identified a triggering event requiring an interim quantitative assessment on our goodwill.

The quantitative assessment is based on our current projections and is subject to various risks, uncertainties and estimates including:

(1) forecasted revenues, expenses and cash flows, including future travel supplier capacity and load factors on those estimates and technology costs, (2) the duration and extent of the impact of the COVID-19 pandemic on our business and our customers, (3) current discount and long-term growth rates, (4) the reduction in our market capitalization, (5) current market transaction trends and (6) changes to the regulatory environment impacting our industry.

Based on our interim impairment assessment as of March 31, 2020, we have determined that our goodwill is not impaired;

however, we estimate that Airline Solutions has a fair value that approximates its carrying value.

Fair Value Measurements for further information about our interim goodwill quantitative assessment.

If the factors associated with our estimate of the fair value of Airlines Solutions differ from actual results, Airline Solutions goodwill totaling $ 372 million could be subject to impairment in the future, which would negatively impact our financial results but would not impact our cash flow.

The impact of an impairment on our results of operations could be material.

In addition, we reviewed other long-lived assets including intangible assets, and did not identify any material impairments.

As we cannot predict the duration or scope of the COVID-19 pandemic, future impairments may occur and the negative financial impact to our consolidated financial statements and results of operations cannot be reasonably estimated but could be material.

We reviewed our goodwill and other long-lived assets including intangible assets as of June 30, 2020, and did not identify any material impairments.

As we cannot predict the duration or scope of the COVID-19 pandemic, future impairments may occur and the negative financial impact to our consolidated financial statements and results of operations of potential future impairments cannot be reasonably estimated but could be material.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law, which provides over $2 trillion in economic relief in response to the COVID-19 pandemic.

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In addition, we do not expect any of the provisions of the CARES Act to have a material impact on our consolidated financial statements.

During the second quarter of 2020, several of our customers have filed for bankruptcy protection in various jurisdictions.

Due to our creditor position, we do not expect significant recovery for amounts due to us prior to the customer's filing for bankruptcy protection and have fully reserved for any amounts due;

however, we continue to provide services and receive timely payment for post-bankruptcy balances due in most cases.

In April 2019, a customer of Travel Network and Airline Solutions, Jet Airways (India) Ltd.

("Jet Airways"), suspended flight operations and is in insolvency proceedings.

("Jet Airways"), ceased operations and began insolvency proceedings.

Our revenue was negatively impacted in 2019 and will continue to be negatively impacted in 2020.

This insolvency, coupled with the macroeconomic and geopolitical environment and channel shift related to certain European carriers, has negatively impacted our revenue growth and contributed to reduced growth rates in the GDS industry.

This insolvency, coupled with the macroeconomic and geopolitical

environment and channel shift related to certain European carriers, has negatively impacted our revenue growth and contributed to reduced growth rates in the GDS industry.

In addition, for Airline Solutions, Bangkok Airways Public Company Limited and Philippine Airlines, Inc.

(the "Transitioned Customers"), previously made decisions to transition from our services, which will dilute our growth rates on a year-over-year basis.

(the "Transitioned Customers"), previously made decisions to transition from our services, which will impact our revenue on a year-over-year basis.

Philippine Airlines transitioned in March 2019 and Bangkok Airways Public Company Limited transitioned in August 2019.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of personnel-related expenses, including stock-based compensation, for employees that sell our services to new customers and administratively support the business, information technology and communication costs, professional service fees, certain settlement charges or reimbursements, costs to defend legal disputes, bad debt expense, depreciation and amortization and other overhead costs.

Selling, general and administrative expenses consist of personnel-related expenses, including stock-based compensation, for employees that sell our services to new customers and administratively support the business, information technology and communication costs, professional service fees, certain settlement charges or reimbursements, costs to defend legal disputes, provision for expected credit losses, depreciation and amortization and other overhead costs.

Intersegment Transactions

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“Direct Billable Bookings” and “Passengers Boarded” are the primary metrics utilized by Travel Network and Airline Solutions, respectively, to measure operating performance.

Travel Network generates fees for each Direct Billable Booking which include bookings made through our GDS (e.g., Air, and Lodging, Ground and Sea ("LGS")) and through our equity method investments in cases where we are paid directly by the travel supplier.

Passengers Boarded (“PBs”) is the primary metric used by Airline Solutions to recognize SaaS and hosted revenue from recurring usage-based fees.

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The following table sets forth these key metrics for the periods indicated (in thousands):

Three Months Ended March 31,

2020 2019 % Change

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 % Change 2020 2019 % Change

Travel Network

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We define Adjusted Operating (Loss) Income as operating (loss) income adjusted for equity method (loss) income, acquisition-related amortization, restructuring and other costs, acquisition-related costs, litigation costs, net, and stock-based compensation.

We define Adjusted Net (Loss) Income as net (loss) income attributable to common stockholders adjusted for loss from discontinued operations, net of tax, net income attributable to noncontrolling interests, acquisition-related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs, net, stock-based compensation, and the tax impact of adjustments.

We define Adjusted Net (Loss) Income as net (loss) income attributable to common stockholders adjusted for loss (income) from discontinued operations, net of tax, net income attributable to noncontrolling interests, acquisition-related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs, net, stock-based compensation, and the tax impact of adjustments.

We define Adjusted EBITDA as Adjusted Net (Loss) Income adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, amortization of upfront incentive consideration, interest expense, net, and the remaining provision for income taxes.

We define Free Cash Flow as cash provided by operating activities less cash used in additions to property and equipment.

We define Free Cash Flow as cash (used in) provided by operating activities less cash used in additions to property and equipment.

We define Adjusted Net (Loss) Income from continuing operations per share as Adjusted Net (Loss) Income divided by diluted weighted-average common shares outstanding.

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The following table sets forth the reconciliation of net (loss) income attributable to common stockholders to Adjusted Net (Loss) Income, Adjusted EBITDA and Adjusted Operating (Loss) Income (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net (loss) income attributable to common stockholders $ (444,131) $ 27,838 $ (656,811) $ 84,688

Loss from discontinued operations, net of tax 2,126 1,452

Net income attributable to non-controlling interests (1)

Loss (income) from discontinued operations, net of tax 672 (1,350) 2,798 102

Net (loss) income attributable to non-controlling interests (1)

(71) 1,606 712 2,518

(Loss) income from continuing operations (443,530) 28,094 (653,301) 87,308

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Restructuring and other costs (8)

48,001 — 73,282 —

Other, net (4)

6,098 2,479 53,584 4,349

Acquisition-related costs (6)

1 unchanged sentence

Litigation costs, net (5)

115 1,386 1,856 2,824

Stock-based compensation 8,762 18,295 26,339 33,989

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Amortization of capitalized implementation costs (2c)

9,417 9,627 18,964 21,738

Amortization of upfront incentive consideration (3)

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The following tables set forth the reconciliation of operating (loss) income in our statement of operations to Adjusted Gross Profit, Adjusted EBITDA and Adjusted Operating (Loss) Income by business segment (in thousands):

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Network Airline

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Solutions Corporate Total

Operating (loss) income $ 22,658 $ (32,579) $ (16,457) $ (125,033) $ (151,411)

Operating loss $ (182,832) $ (68,309) $ (19,409) $ (113,520) $ (384,070)

Selling, general and administrative 31,613 20,148 8,407 56,395 116,563

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— — — (16,509) (16,509)

Adjusted Operating (Loss) Income $ 21,972 $ (32,579) $ (16,457) $ (45,806) $ (72,870)

Three Months Ended March 31, 2019

Adjusted Operating Loss $ (183,331) $ (68,309) $ (19,409) $ (35,760) $ (306,809)

Three Months Ended June 30, 2019

Network Airline

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Adjusted Operating Income (Loss) $ 159,797 $ 22,660 $ (5,746) $ (49,758) $ 126,953

The following tables present information from our statements of cash flows and set forth the reconciliation of Free Cash Flow to cash provided by operating activities, the most directly comparable GAAP measure (in thousands):

Three Months Ended March 31,

Cash provided by operating activities $ 40,431 $ 152,000

Six Months Ended June 30, 2020

Travel Network Airline Solutions Hospitality Solutions Corporate Total

Operating loss $ (160,174) $ (100,888) $ (35,866) $ (238,553) $ (535,481)

Selling, general and administrative 80,582 66,667 20,092 148,095 315,436

Cost of revenue adjustments:

Depreciation and amortization (2)

43,598 75,231 20,700 12,837 152,366

Restructuring and other costs (8)

— — — 57,447 57,447

Amortization of upfront incentive consideration (3)

37,289 — — — 37,289

Stock-based compensation — — — 11,043 11,043

Adjusted Gross Profit 1,295 41,010 4,926 (9,131) 38,100

Selling, general and administrative (80,582) (66,667) (20,092) (148,095) (315,436)

Equity method loss (1,185) — — — (1,185)

Selling, general and administrative adjustments:

Depreciation and amortization (2)

6,303 5,609 2,260 23,277 37,449

Restructuring and other costs (8)

— — — 15,835 15,835

Acquisition-related costs (6)

— — — 22,200 22,200

Litigation costs, net (5)

— — — 1,856 1,856

Stock-based compensation — — — 15,296 15,296

Adjusted EBITDA (74,169) (20,048) (12,906) (78,762) (185,885)

Depreciation and amortization (2)

49,901 80,840 22,960 36,114 189,815

Amortization of upfront incentive consideration (3)

37,289 — — — 37,289

Acquisition-related amortization (2a)

— — — (33,310) (33,310)

Adjusted Operating Loss $ (161,359) $ (100,888) $ (35,866) $ (81,566) $ (379,679)

Six Months Ended June 30, 2019

Travel Network Airline Solutions Hospitality Solutions Corporate Total

Operating income (loss) $ 352,023 $ 38,084 $ (11,463) $ (186,324) $ 192,320

Selling, general and administrative 88,942 45,119 20,131 151,904 306,096

Cost of revenue adjustments:

Depreciation and amortization (2)

55,034 80,729 23,809 11,941 171,513

Amortization of upfront incentive consideration (3)

38,974 — — — 38,974

Stock-based compensation — — — 14,625 14,625

Adjusted Gross Profit 534,973 163,932 32,477 (7,854) 723,528

Selling, general and administrative (88,942) (45,119) (20,131) (151,904) (306,096)

Equity method income 946 — — — 946

Selling, general and administrative adjustments:

Depreciation and amortization (2)

6,242 5,526 2,533 22,476 36,777

Acquisition-related costs (6)

— — — 20,641 20,641

Litigation costs, net (5)

— — — 2,824 2,824

Stock-based compensation — — — 19,364 19,364

Adjusted EBITDA 453,219 124,339 14,879 (94,453) 497,984

Depreciation and amortization (2)

61,276 86,255 26,342 34,417 208,290

Amortization of upfront incentive consideration (3)

38,974 — — — 38,974

Acquisition-related amortization (2a)

— — — (31,995) (31,995)

Adjusted Operating Income (Loss) $ 352,969 $ 38,084 $ (11,463) $ (96,875) $ 282,715

The following tables present information from our statements of cash flows and set forth the reconciliation of Free Cash Flow to cash (used in) provided by operating activities, the most directly comparable GAAP measure (in thousands):

Six Months Ended June 30,

Cash (used in) provided by operating activities $ (395,036) $ 257,661

Cash used in investing activities (43,746) (76,163)

Cash provided by (used in) financing activities 1,308,193 (292,975)

Three Months Ended March 31,

Cash provided by operating activities $ 40,431 $ 152,000

Six Months Ended June 30,

Cash (used in) provided by operating activities $ (395,036) $ 257,661

Additions to property and equipment (39,333) (67,196)

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These service contracts with travel agency subscribers require that the customer commit to achieving certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those objectives are not met.

(4) Other, net primarily includes a $46 million charge in connection with our proposed acquisition of Farelogix Inc.

(4) Other, net includes a $46 million charge related to termination payments incurred in the first quarter of 2020 in connection with our proposed acquisition of Farelogix Inc.

("Farelogix"), as well as foreign exchange gains and losses related to the remeasurement of foreign currency denominated balances included in our consolidated balance sheets into the relevant functional currency.

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Acquisitions.

(7) The tax impact of adjustments includes the tax effect of each separate adjustment based on the statutory tax rate for the jurisdiction(s) in which the adjustment was taxable or deductible, and the tax effect of items that relate to tax specific financial transactions, tax law changes, uncertain tax positions and other items.

(8) Restructuring and other costs represent charges associated with business restructuring and associated changes implemented which resulted in severance benefits related to employee terminations.

In the first quarter of 2020, we recorded a $25 million charge associated with an announced action to reduce our workforce in connection with cost savings measures as a result of the market conditions caused by COVID-19.

(8) Restructuring and other costs represent charges associated with business restructuring and associated changes , including a strategic realignment of our airline and agency-focused businesses, as well as other measures to support the new organizational structure and to respond to the impacts of the COVID-19 pandemic on our business and cost structure.

Restructuring Activities for further details.

Results of Operations

The following table sets forth our consolidated statement of operations data for each of the periods presented:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(Amounts in thousands)

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(Loss) Income from continuing operations $ (443,530) $ 28,094 $ (653,301) $ 87,308

Three Months Ended March 31, 2020 and 2019

Three Months Ended March 31,

Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30,

2020 2019 Change

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Total revenue $ 83,044 $ 1,000,006 $ (916,962) (92) %

Travel Network— Revenue decreased $346 million, or 45%, for the three months ended March 31, 2020 compared to the same period in the prior year, primarily due to a decrease in transaction-based revenue of $343 million to $388 million.

Travel Network— Revenue decreased $758 million, or 105%, for the three months ended June 30, 2020 compared to the same period in the prior year, primarily due to a decrease in transaction-based revenue of $741 million, including increased cancellation activity in the second quarter of approximately $100 million beyond what was initially estimated.

The decrease in revenue is primarily due from lower transaction volume as the result of the COVID-19 pandemic and cancellations, which resulted in negative net Direct Billable Bookings in April and May 2020.

While net Direct Billable Bookings were positive in June 2020, Direct Billable Bookings decreased 105% for the second quarter from the prior year to net cancelled bookings of 7 million primarily resulting from the COVID-19 pandemic.

Airline Solutions— Revenue decreased $122 million, or 58%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The $122 million decrease in revenue primarily resulted from:

• a $94 million decrease in Reservation revenue for the three months ended June 30, 2020 compared to the same period in the prior year.

This decline is primarily due to the impact of the COVID-19 pandemic on our existing customer base and a $5 million decrease in revenue compared to the same period in the prior year due to the demigration of the Transitioned Customers.

This decrease was partially offset by an increase of $4 million driven by the acquisition of Radixx in October 2019.

Passengers Boarded, inclusive of Radixx, decreased by 89% to 20 million for the three months ended June 30, 2020;

• a $28 million decrease in AirVision and AirCentre commercial and operations solutions revenue primarily due to the impact of the COVID-19 pandemic on our existing customer base.

Hospitality Solutions— Revenue decreased $45 million, or 61%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 62% to 11 million, as a result of the COVID-19 pandemic.

Cost of Revenue

Three Months Ended June 30,

2020 2019 Change

(Amounts in thousands)

Travel Network $ 77,611 $ 472,338 $ (394,727) (84) %

Airline Solutions 100,541 126,031 (25,490) (20) %

Hospitality Solutions 29,769 57,109 (27,340) (48) %

Eliminations (2,219) (10,321) 8,102 79 %

Total segment cost of revenue 205,702 645,157 (439,455) (68) %

Corporate 50,780 11,795 38,985 331 %

Depreciation and amortization 74,993 86,590 (11,597) (13) %

Amortization of upfront incentive consideration 19,076 19,846 (770) (4) %

Total cost of revenue $ 350,551 $ 763,388 $ (412,837) (54) %

Travel Network— Cost of revenue decreased $395 million, or 84%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a $366 million decline in incentive consideration in all regions due to lower transaction volume as the result of the COVID-19 pandemic, as well as a $22 million reduction in non-development labor costs in connection with our cost reduction measures.

The decrease is also driven by a decline in technology costs associated with lower transaction volumes.

Airline Solutions— Cost of revenue decreased $25 million, or 20%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a reduction in non-development labor costs as a result of our cost reduction measures and a decline in technology costs associated with lower transaction volumes.

Hospitality Solutions— Cost of revenue decreased $27 million, or 48%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a $20 million reduction in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures.

Corporate— Cost of revenue associated with corporate costs increased $39 million, or 331%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The increase was primarily due to a restructuring charge of $41 million for severance benefits and an increase in labor costs from implementing the shift to open source and cloud-based solutions.

This increase was partially offset by a reduction in non-development labor costs in connection with our cost reduction measures.

Depreciation and amortization— Depreciation and amortization decreased $12 million, or 13%, for the three months ended June 30, 2020 compared to the same period in the prior year.

The decrease is primarily due to a change in mix of our technology spend in 2019 resulting in less capitalized internal use software.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased for the three months ended June 30, 2020 compared to the same period in the prior year.

The decrease is primarily due to a reduction in upfront consideration provided to travel agencies.

Selling, General and Administrative Expenses

Three Months Ended June 30,

2020 2019 Change

(Amounts in thousands)

Selling, general and administrative $ 116,563 $ 154,705 $ (38,142) (25) %

Selling, general and administrative expenses decreased $38 million, or 25%, for the three months ended June 30, 2020 compared to the same period in the prior year, primarily driven by a $24 million decrease in labor costs in connection with our cost reduction measures, a decrease in technology costs of $9 million, a $5 million reduction in legal costs associated with the potential acquisition of Farelogix in the prior year, and a reduction in costs due to our expense management initiatives given the decline in transaction volume resulting from COVID-19.

This decrease was partially offset by a restructuring charge of $7 million for severance benefits.

Other expense, net

Three Months Ended June 30,

2020 2019 Change

(Amounts in thousands)

Other expense, net $ 6,098 $ 2,479 $ 3,619 146 %

** not meaningful

Other expense, net increased $4 million for the three months ended June 30, 2020 compared to the same period in the prior year primarily due to an actuarial loss associated with our pension plan in the current year as well as realized and unrealized foreign currency exchange losses.

The increase is also due to a benefit recognized in the prior year associated with a reduction to our TRA liability due to the settlement of an audit.

Provision for Income Taxes

Three Months Ended June 30,

2020 2019 Change

(Amounts in thousands)

Provision for income taxes $ (5,718) $ 12,145 $ (17,863) (147) %

Our effective tax rates for the three months ended June 30, 2020 and 2019 were 1% and 30%, respectively.

The decrease in the effective tax rate for the three months ended June 30, 2020 as compared to the same period in 2019 was primarily due to a $70 million valuation allowance recorded on tax losses generated in the current tax year related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective three month periods.

The difference between our effective tax rates and the U.S.

federal statutory income tax rate primarily results from our geographic mix of taxable income in various tax jurisdictions, tax permanent differences and tax credits.

Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30,

2020 2019 Change

(Amounts in thousands)

Travel Network $ 394,441 $ 1,498,600 $ (1,104,159) (74) %

Airline Solutions 269,409 424,760 (155,351) (37) %

Hospitality Solutions 88,239 146,707 (58,468) (40) %

Total segment revenue 752,089 2,070,067 (1,317,978) (64) %

Eliminations (10,068) (20,700) 10,632 51 %

Total revenue $ 742,021 $ 2,049,367 $ (1,307,346) (64) %

Travel Network— Revenue decreased $1,104 million, or 74%, for the six months ended June 30, 2020 compared to the same period in the prior year, primarily due to a decrease in transaction-based revenue of $1,084 million to $328 million.

The decrease in revenue primarily resulted from a 74% decrease in Direct Billable Bookings to 78 million primarily resulting from the COVID-19 pandemic.

Airline Solutions— Revenue decreased $33 million, or 16%, for the three months ended March 31, 2020 compared to the same period in the prior year.

Airline Solutions— Revenue decreased $155 million, or 37%, for the six months ended June 30, 2020 compared to the same period in the prior year.

The $155 million decrease in revenue primarily resulted from:

• a $22 million decrease in Reservation revenue for the three months ended March 31, 2020 compared to the same period in the prior year.

This decline is primarily due to a $27 million decrease in revenue compared to the same period in the prior year due to the demigration of the Transitioned Customers, Jet Airways' insolvency in April 2019 and the impact of the COVID-19 pandemic on our existing customer base.

• a $116 million decrease in Reservation revenue for the six months ended June 30, 2020 compared to the same period in the prior year.

This decline is primarily due the impact of the COVID-19 pandemic on our existing customer base and a $20 million decrease in revenue compared to the same period in the prior year due to the demigration of the Transitioned Customers and Jet Airways' insolvency in April 2019.

This decrease was partially offset by an increase of $9 million driven by the acquisition of Radixx in October 2019.

Passengers Boarded, inclusive of Radixx, decreased by 10% to 167 million for the three months ended March 31, 2020.

• a $11 million decrease in AirVision and AirCentre commercial and operations solutions revenue primarily driven by a decrease in license fee revenue from new implementations recognized upon delivery to the customer in the prior year, Jet Airways' insolvency in April 2019, and lower volumes.

Hospitality Solutions— Revenue decreased $14 million, or 19%, for the three months ended March 31, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 9% to 21 million, as a result of the COVID-19 pandemic, and a decline in average transaction rate driven by the migration of certain enterprise hotel brands to our platform beginning in the second quarter of 2019.

Passengers Boarded, inclusive of Radixx, decreased by 49% to 187 million for the six months ended June 30, 2020;

• a $39 million decrease in AirVision and AirCentre commercial and operations solutions revenue primarily due to the impact of the COVID-19 pandemic on our existing customer base, and Jet Airways' insolvency in April 2019.

Hospitality Solutions— Revenue decreased $58 million, or 40%, for the six months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 38% to 32 million, as a result of the COVID-19 pandemic.

Cost of Revenue

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 Change

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Total cost of revenue $ 962,066 $ 1,550,951 $ (588,885) (38) %

Travel Network— Cost of revenue decreased $176 million, or 36%, for the three months ended March 31, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a $175 million decline in incentive consideration in all regions due to lower transaction volume as the result of the COVID-19 pandemic, as well as a reduction in non-development labor costs in connection with our reduction measures.

Airline Solutions— Cost of revenue decreased $7 million, or 5%, for the three months ended March 31, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a reduction in non-development labor costs as a result of our cost reduction measures.

Hospitality Solutions— Cost of revenue decreased $4 million, or 6%, for the three months ended March 31, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a $4 million decrease in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures.

Corporate— Cost of revenue associated with corporate costs increased $16 million, or 151%, for the three months ended March 31, 2020 compared to the same period in the prior year.

This increase was primarily due to an accrual of $17 million of severance benefits associated with a reduction of our workforce.

Depreciation and amortization— Depreciation and amortization decreased $8 million, or 9%, for the three months ended March 31, 2020 compared to the same period in the prior year.

Travel Network— Cost of revenue decreased $570 million, or 59%, for the six months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a $541 million decline in incentive consideration in all regions due to lower transaction volume as the result of the COVID-19 pandemic, as well as a $29 million reduction in development and non-development labor costs in connection with our cost reduction measures.

Airline Solutions— Cost of revenue decreased $32 million, or 12%, for the six months ended June 30, 2020 compared to the same period in the prior year.

Hospitality Solutions— Cost of revenue decreased $31 million, or 27%, for the six months ended June 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a $24 million reduction in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures.

Corporate— Cost of revenue associated with corporate costs increased $55 million, or 245%, for the six months ended June 30, 2020 compared to the same period in the prior year.

This increase was primarily due to a restructuring charge of $57 million for severance benefits and an increase in labor costs resulting from the shift to open source and cloud-based solutions.

This increase was partially offset by a reduction in non-development labor costs in connection with our cost reduction measures.

Depreciation and amortization— Depreciation and amortization decreased $19 million, or 11%, for the six months ended June 30, 2020 compared to the same period in the prior year.

The decrease is primarily due to a change in mix of our technology spend in 2019 resulting in less capitalized internal use software.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased for the three months ended March 31, 2020 compared to the same period in the prior year.

The decrease is primarily due to decreased upfront cash provided to travel agencies.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased $2 million, or 4%, for the six months ended June 30, 2020 compared to the same period in the prior year.

The decrease is primarily due to a reduction in upfront consideration provided to travel agencies.

Selling, General and Administrative Expenses

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 Change

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Selling, general and administrative $ 315,436 $ 306,096 $ 9,340 3 %

Selling, general and administrative expenses increased $47 million, or 31%, for the three months ended March 31, 2020 compared to the same period in the prior year, primarily driven by a $31 million increase in bad debt expense, primarily related to fully reserving for balances related to certain customers, an increase in our forecasted credit losses due to the impact of the COVID-19 pandemic on the global economy and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard.

In addition, we recorded an accrual of $9 million of severance benefits associated with the reduction of our workforce, additional legal costs associated with the potential acquisition of Farelogix of $4 million, and an increase in technology costs of $3 million related to strategic investments in cybersecurity and corporate systems.

Selling, general and administrative expenses increased $9 million, or 3%, for the six months ended June 30, 2020 compared to the same period in the prior year, primarily driven by a $34 million increase in the provision for expected credit losses, primarily related to fully reserving for aged balances related to certain customers, an increase in bankruptcy-related reserves, an increase in our forecasted credit losses due to the impact of the COVID-19 pandemic on the global economy and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard.

The increase is also due to a restructuring charge of $16 million for severance benefits.

The increase is partially offset by a $28 million decrease in labor costs in connection with our cost reduction measures, a $6 million decrease in technology costs and a reduction in other costs due to our expense management initiatives given the decline in transaction volume resulting from COVID-19.

Other expense, net

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 Change

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** not meaningful

Other expense, net increased $46 million for the three months ended March 31, 2020 compared to the same period in the prior year primarily due to a $46 million charge related to termination payments in connection with our proposed acquisition of Farelogix.

Other expense, net increased $49 million for the six months ended June 30, 2020 compared to the same period in the prior year primarily due to a $46 million charge related to termination payments in connection with our proposed acquisition of Farelogix, an actuarial loss associated with our pension plan, and realized and unrealized foreign currency exchange losses.

The increase is also due to a benefit recognized in the prior year associated with a reduction to our TRA liability due to the settlement of an audit.

Acquisitions for further detail regarding the Farelogix acquisition.

Provision for Income Taxes

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 Change

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Provision for income taxes $ (32,972) $ 23,988 $ (56,960) (237) %

Our effective tax rates for the three months ended March 31, 2020 and 2019 were 11% and 17%, respectively.

The decrease in the effective tax rate for the three months ended March 31, 2020 as compared to the same period in 2019 was primarily due to tax losses related to the impact of COVID-19 on our results of operations, and various discrete items recorded in each of the respective three month periods including a decrease in the India withholding tax rate resulting from legislation enacted on March 27, 2020.

The decrease in the India withholding tax rate resulted in a $4 million income tax benefit, which includes the impact for the three-month period ended March 31, 2020 and the application of the newly enacted rates to existing deferred balances.

Our effective tax rates for the six months ended June 30, 2020 and 2019 were 5% and 22%, respectively.

The decrease in the effective tax rate for the six months ended June 30, 2020 as compared to the same period in 2019 was primarily due to a$94 million valuation allowance recorded on tax losses generated in the current tax year related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective six month periods.

The difference between our effective tax rates and the U.S.

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Borrowing availability under our Revolver is reduced by our outstanding letters of credit and restricted cash collateral.

As of March 31, 2020 and December 31, 2019, our cash and cash equivalents, Revolver and outstanding letters of credit were as follows (in thousands):

March 31, 2020 December 31, 2019

As of June 30, 2020 and December 31, 2019, our cash and cash equivalents, Revolver and outstanding letters of credit were as follows (in thousands):

June 30, 2020 December 31, 2019

Cash and cash equivalents $ 1,306,288 $ 436,176

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We invest in a money market fund which is classified as cash and cash equivalents in our consolidated balance sheets and statements of cash flows.

We held no short-term investments as of March 31, 2020 and December 31, 2019.

We held no short-term investments as of June 30, 2020 and December 31, 2019.

As of December 31, 2018, we have utilized substantially all of our U.S.

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As a result, we previously expected to be a U.S federal cash tax payer in 2020 and future years.

Because of the significant adverse impact of the COVID-19 pandemic on our business, however, we do not expect to be a U.S.

Because of the significant adverse impact of the COVID-19 pandemic on our business, however, we expect to have significant NOLs related to the current year and we do not expect to be a U.S.

federal cash tax payer for 2020.

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The reduction in revenues as the result of COVID-19 has significantly adversely affected our liquidity.

We are responding with measures to increase our cash position, including the suspension of dividends and share repurchases under the Share Repurchase Program (the "Share Repurchase Program"), borrowing under our existing revolving credit facility, implementation of cost savings measures, and the completion of debt offerings.

As previously disclosed, we responded with measures to increase our cash position, including the suspension of dividends and share repurchases under the Share Repurchase Program (the "Share Repurchase Program"), borrowing under our existing revolving credit facility, implementation of cost savings measures, and the completion of debt offerings.

Given the magnitude of travel decline and the unknown duration of the COVID-19 impact, we will continue to monitor travel activity and take additional steps should we determine they are necessary.

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However, based on our assumptions and estimates with respect to our financial condition, we believe that we have resources to sufficiently fund our liquidity requirements over at least the next twelve months.

We may supplement our current liquidity through debt or equity offerings to support future strategic investments, or to pay down debt.

We utilize cash and cash equivalents, supplemented by our Revolver, primarily to pay our operating expenses, make capital expenditures, invest in our information technology infrastructure, products and offerings, pay quarterly dividends on our common stock, pay taxes, and service our debt and other long-term liabilities.

We may conduct debt or equity offerings to support future strategic investments, provide additional liquidity, or pay down debt;

in addition, we are reviewing opportunities to refinance our outstanding debt and extend our debt maturity profile, including Term Loan A and our Revolver.

We utilize cash and cash equivalents, supplemented by our Revolver, primarily to pay our operating expenses, make capital expenditures, invest in our information technology infrastructure, products and offerings, pay taxes, and service our debt and other long-term liabilities.

On April 17, 2020, Sabre GLBL entered into two new debt agreements consisting of the following:

(1) $775 million aggregate principal amount of 9.250% senior secured notes due 2025 (the “Secured Notes”) and (2) $345 million aggregate principal amount of 4.000% senior exchangeable notes due 2025 (the “Exchangeable Notes” and together with the Secured Notes, the “Notes”).

On March 17, 2020, we drew $375 million under the Revolver to supplement our liquidity needs.

We had $375 million outstanding under the Revolver as of March 31, 2020 and no balance outstanding as of December 31, 2019.

We had outstanding letters of credit totaling $11 million and $12 million as of March 31, 2020 and December 31, 2019, respectively, which reduced our overall credit capacity under the Revolver.

We had $375 million outstanding under the Revolver as of June 30, 2020 and no balance outstanding as of December 31, 2019.

We had outstanding letters of credit totaling $12 million as of June 30, 2020 and December 31, 2019, which reduced our overall credit capacity under the Revolver.

The current interest rate for borrowings under the Revolver is LIBOR plus an adjusted spread based on leverage as reflected in the Revolver.

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Recent Events Impacting Our Liquidity and Capital Resources

Debt Offerings

Debt Agreements

On April 17, 2020, Sabre GLBL entered into two new debt agreements consisting of the following:

(1) $775 million aggregate principal amount of the Secured Notes and (2) $345 million aggregate principal amount of the Exchangeable Notes.

Debt for further information.

The Secured Notes are jointly and severally, irrevocably and unconditionally guaranteed by Sabre Holdings and all of Sabre GLBL’s restricted subsidiaries that guarantee the Issuer’s credit facility.

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The Exchangeable Notes are guaranteed on a senior unsecured basis by Sabre and Sabre Holdings.

The net proceeds from the sales of the Notes will be used for general corporate purposes.

The net proceeds from the sales of the Notes are being used for general corporate purposes.

Cost Reduction Efforts

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As part of these cost reduction efforts, we are implementing several immediate actions with regard to our workforce and other costs during this difficult business climate.

These actions include :

• A reduction in the cash retainer for members of our Board of Directors;

• Our 401(k) match program has been temporarily suspended for US-based employees;

• Reductions in third-party contracting, vendor costs and other discretionary spending

See "—Recent Developments Affecting our Results of Operations" for further information.

Farelogix Acquisition

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Department of Justice ("DOJ") filed a complaint in federal court in the District of Delaware, seeking a permanent injunction to prevent Sabre from acquiring Farelogix, alleging that the proposed acquisition is likely to substantially lessen competition in violation of federal antitrust law.

On April 7, 2020, the trial court ruled in favor of Sabre, denying the DOJ’s request for an injunction.

On April 8, 2020, the DOJ filed its notice of appeal.

On April 9, 2020, the U.K.

Competition and Markets Authority ("CMA") blocked the acquisition following its Phase 2 investigation.

We intend to appeal the CMA's decision to the U.K.

Competition Appeal Tribunal.

Under the acquisition agreement, as amended, we agreed to advance certain attorneys’ fees incurred by Farelogix in responding to certain governmental reviews of the acquisition and in defending against certain antitrust proceedings, which totaled $25 million as of March 31, 2020.

Given the CMA's decision, we recorded a charge of $46 million during the three months ended March 31, 2020 included in Other, net in our consolidated statements of operations which is comprised of the $25 million in advances mentioned above and additional termination fees of $21 million.

Sabre and Farelogix agreed to terminate the acquisition agreement on May 1, 2020 and we have paid Farelogix aggregate termination fees of $21 million in the second quarter of 2020 pursuant to the acquisition agreement.

During the three months ended March 31, 2020, we paid a quarterly cash dividend of $0.14 per share of our common stock totaling $39 million.

Given the CMA's decision, we recorded a charge of $46 million during the six months ended June 30, 2020 included in other, net in our consolidated statements of operations which is comprised of $25 million in advances for certain attorneys' fees and additional termination fees of $21 million.

Sabre and Farelogix agreed to terminate the acquisition agreement on May 1, 2020 and we paid Farelogix aggregate termination fees of $21 million in the second quarter of 2020 pursuant to the acquisition agreement.

During the six months ended June 30, 2020, we paid a quarterly cash dividend of $0.14 per share of our common stock totaling $39 million.

On March 16, 2020, we announced the suspension of the payment of quarterly cash dividends on our common stock, effective with respect to the dividends occurring after the March 30, 2020 payment.

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Repurchases under the Share Repurchase Program may take place in the open market or privately negotiated transactions.

For the three months ended March 31, 2020, we did not repurchase any shares pursuant to the Share Repurchase Program.

For the six months ended June 30, 2020, we did not repurchase any shares pursuant to the Share Repurchase Program.

On March 16, 2020, we announced the suspension of share repurchases under the Share Repurchase Program in conjunction with the cash management measures we are undertaking as a result of the market conditions caused by COVID-19.

Approximately $287 million remains authorized for repurchases under the Share Repurchase Program as of March 31, 2020.

Approximately $287 million remains authorized for repurchases under the Share Repurchase Program as of June 30, 2020.

Senior Secured Credit Facilities

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Pursuant to Credit Agreement Amendments, effective July 18, 2016, the maximum leverage ratio has been adjusted to be based on the Total Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) and we are required, at all times (no longer solely when a threshold amount of revolving loans or letters of credit were outstanding), to maintain a Total Net Leverage Ratio of less than 4.5 to 1.0.

As of March 31, 2020, we are in compliance with all covenants under the Amended and Restated Credit Agreement.

Under the terms of the Amended and Restated Credit Agreement, the financial covenant related to our leverage ratio is suspended for a limited time if a “Material Travel Event Disruption” has occurred.

As defined in the Amended and Restated Credit Agreement, a “Material Travel Event Disruption” means, in any given calendar month, a decrease of 10% or more in the number of “domestic revenue passenger enplanements” (determined by reference to the monthly “Air Traffic Statistics” published by the Bureau of Transportation Statistics) has occurred as a result of or in connection with a Travel Event (as defined in the Amended and Restated Credit Agreement) as compared to the number of “domestic revenue passenger enplanements” (determined by reference to the monthly “Air Traffic Statistics” published by the Bureau of Transportation Statistics) occurring in the corresponding month during the prior year or, if a Material Travel Event Disruption existed during such month, the most recent corresponding month in which no Material Travel Event Disruption occurred/existed.

As of March 31, 2020, we are unable to evaluate if a Material Travel Event Disruption has occurred.

However, we believe that recent capacity reductions by domestic airlines in response to the COVID-19 outbreak and related anticipated decreases in domestic passenger enplanements, and a recent sharp decline in GDS bookings, will lead in the coming months to a finding that a Material Travel Event Disruption has occurred and a determination that the leverage ratio covenant has been suspended for a minimum of two quarters, the quarter in which a Material Travel Event Disruption has occurred and the quarter following the quarter in which such Material Travel Event Disruption has occurred, as outlined in the credit agreement.

corresponding month during the prior year or, if a Material Travel Event Disruption existed during such month, the most recent corresponding month in which no Material Travel Event Disruption occurred/existed.

As of June 30, 2020, the recent capacity reductions by domestic airlines in response to the COVID-19 outbreak and related anticipated decreases in domestic passenger enplanements, and a recent sharp decline in GDS bookings, has led to a finding that a Material Travel Event Disruption has occurred.

As such, the leverage ratio covenant has been suspended for at least the second and third quarters of 2020.

We are also required to pay down the term loans by an amount equal to 50% of annual excess cash flow, as defined in the Amended and Restated Credit Agreement.

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Immediately prior to the closing of our initial public offering in April 2014, we entered into the Tax Receivable Agreement (the "TRA"), which provides the right to receive future payments from us to stockholders and equity award holders that were our stockholders and equity award holders, respectively, immediately prior to the closing of our initial public offering (collectively, the “Pre-IPO Existing Stockholders”).

We made payments on the TRA, including interest, of $72 million and $74 million during the three months ended March 31, 2020 and 2019, respectively.

In December 2019, we exercised our right under the terms of the TRA to accelerate our remaining payments under the TRA and make an early termination payment of $1 million, to the Pre-IPO Existing Shareholders, which was included in our January 2020 payment of $72 million described above.

As a result, no future payments are required to be made to the Pre-IPO Existing Stockholders under the TRA.

We made payments on the TRA, including interest, of $72 million and $105 million during the six months ended June 30, 2020 and 2019, respectively.

Technology Expenditures

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Additionally, we rely on other third-party providers, including DXC, Amazon Web Services, Inc., Google Cloud, and Microsoft Corporation, to operate computer data centers and network systems and provide hosting services.

The aggregation of these costs represents our total technology expenditures of $255 million and $261 million for the three months ended March 31, 2020 and 2019, respectively.

These amounts include hosting, third-party software and expensed research and development costs of $240 million and $234 million for the three months ended March 31, 2020 and 2019, respectively, and capitalized software development expenditures, of $15 million and $27 million for these respective periods.

Three Months Ended March 31,

The aggregation of these costs represents our total technology expenditures of $458 million and $517 million for the six months ended June 30, 2020 and 2019, respectively.

These amounts include hosting, third-party software and expensed research and development costs of $434 million and $466 million for the six months ended June 30, 2020 and 2019, respectively, and capitalized software development expenditures, of $24 million and $51 million for these respective periods.

Six Months Ended June 30,

(Amounts in thousands)

Cash provided by operating activities $ 40,431 $ 152,000

Cash (used in) provided by operating activities $ (395,036) $ 257,661

Cash used in investing activities (43,746) (76,163)

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Operating Activities

Cash provided by operating activities for the three months ended March 31, 2020 was $40 million and consisted of net loss from continuing operations of $210 million, offset by adjustments for non-cash and other items of $150 million and an increase in cash from changes in operating assets and liabilities of $100 million.

The adjustments for non-cash and other items consist primarily of $96 million of depreciation and amortization, $36 million in allowance for credit losses, $25 million in acquisition termination fees, $18 million in amortization of upfront incentive consideration, and $18 million stock-based compensation expense, partially offset by $42 million in deferred income taxes.

The increase in cash from changes in operating assets and liabilities of $100 million was primarily the result of a decrease of $121 million in accounts receivable due to the impact of COVID-19 on our revenue and billings to customers, an increase of $22 million in deferred revenue, and a $16 million decrease in other assets.

These increases were partially offset by $24 million used in accrued compensation and related benefits, $23 million used for upfront incentive consideration, an increase of $10 million in prepaid expenses and other current assets, and a decrease of $1 million in accounts payable due to reductions in incentive fees due to the impact of COVID-19 on our volumes, offset by our liability of $21 million associated with accrued termination fees for the Farelogix transaction, incentive fees due to agencies that were delayed in order to allow adjustment for cancellations, and liabilities recorded for refunds due to our customers for booking cancellations.

Cash provided by operating activities for the three months ended March 31, 2019 was $152 million and consisted of net income from continuing operations of $59 million, adjustments for non-cash and other items of $130 million and a decrease in cash from changes in operating assets and liabilities of $37 million.

The adjustments for non-cash and other items consist primarily of $103 million of depreciation and amortization, $19 million in amortization of upfront incentive consideration, and $16 million stock-based compensation expense;

offset by $14 million in deferred income taxes.

The decrease in cash from changes in operating assets and liabilities of $37 million was primarily the result of an increase of $95 million in accounts receivable due to seasonality, $47 million used in accrued compensation and related benefits, an increase of $24 million in prepaid expenses and other current assets, $22 million used for upfront incentive consideration and $8 million used for capitalized implementation costs.

These decreases were partially offset by an increase of $132 million in accounts payable and other accrued liabilities due to seasonality in incentives and business growth, a $26 million decrease in other assets and an increase of $2 million in deferred revenue.

Cash used in operating activities for the six months ended June 30, 2020 was $395 million and consisted of net loss from continuing operations of $653 million, offset by adjustments for non-cash and other items of $291 million, and a decrease in cash from changes in operating assets and liabilities of $32 million.

The adjustments for non-cash and other items consist primarily of $190 million of depreciation and amortization, $48 million in allowance for credit losses, $37 million in amortization of upfront incentive consideration, $26 million stock-based compensation expense, $25 million in acquisition termination fees, and $6 million in amortization of debt discount and debt issuance costs, partially offset by $46 million in deferred income taxes.

The decrease in cash from changes in operating assets and liabilities of $32 million was primarily the result of a decrease of $240 million in accounts payable due to reductions in incentive fees due to the impact of COVID-19 on our volumes and the payment of the remaining $21 million associated with termination fees for the Farelogix transaction, $25 million used for upfront incentive fees due to agencies, and $6 million in capitalized implementation costs.

These decreases were offset by a $178 million decrease in accounts receivable due to the impact of COVID-19 on our revenue and billings to customers, $20 million decrease in other assets, an increase of $21 million in deferred revenue, $17 million used in accrued compensation and related benefits, and a decrease of $3 million in prepaid expenses and other current assets.

Cash provided by operating activities for the six months ended June 30, 2019 was $258 million and consisted of net income from continuing operations of $87 million, adjustments for non-cash and other items of $282 million and a decrease in cash from changes in operating assets and liabilities of $112 million.

The adjustments for non-cash and other items consist primarily of $208 million of depreciation and amortization, $39 million in amortization of upfront incentive consideration, $34 million stock-based compensation expense, $14 million in allowance for doubtful accounts, offset by $14 million in deferred income taxes.

The decrease in cash from changes in operating assets and liabilities of $112 million was primarily the result of a $104 million increase in accounts receivable primarily due to seasonality, $35 million used for upfront incentive consideration, $24 million used for accrued compensation and related benefits, $15 million used for capitalized implementation costs, $4 million increase in other prepaid expenses and other current assets, and a $2 million increase in other assets.

These decreases were partially offset by an increase of $57 million in accounts payable and other accrued liabilities due to seasonality in incentives and business growth, and an increase of $15 million in deferred revenue.

Investing Activities

For the three months ended March 31, 2020, we used cash of $28 million on capital expenditures, including $15 million related to software developed for internal use.

For the three months ended March 31, 2019, we used cash of $38 million on capital expenditures, including $27 million related to software developed for internal use.

For the six months ended June 30, 2020, we used cash of $39 million on capital expenditures, including $24 million related to software developed for internal use.

For the six months ended June 30, 2019, we used cash of $76 million in investing activities, including $51 million related to software developed for internal use.

Financing Activities

For the three months ended March 31, 2020, financing activities provided $238 million.

For the six months ended June 30, 2020, financing activities provided $1,308 million.

Significant highlights of our financing activities include:

• proceeds from borrowings under the Notes of $1,120 million;

• proceeds from borrowings under the Revolver of $375 million;

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• payment of $38 million on our Term Loan A and Term Loan B;

• payment of $29 million on debt issuance costs;

• net payments of $5 million from the settlement of employee stock-option awards, including payments of $5 million in income tax withholdings associated with the settlement of employee restricted-stock awards;

• payment of $4 million on our capital leases.

For the three months ended March 31, 2019, we used $164 million for financing activities.

For the six months ended June 30, 2019, we used $293 million for financing activities.

Significant highlights of our financing activities include:

• third annual payment on the TRA liability for $73 million, excluding interest;

• payment of $39 million in dividends on our common stock;

• annual payment on the TRA liability for $101 million, excluding interest;

• repurchase of 3,673,768 shares of our common stock outstanding totaling $78 million;

• payment of $77 million in dividends on our common stock;

• payment of $24 million on our Term Loan A and Term Loan B;

• net payments of $7 million from the settlement of employee stock-option awards, including payments of $10 million in income tax withholdings associated with the settlement of employee restricted-stock awards .

• net payments of $7 million from the settlement of employee stock-based awards, including $5 million in proceeds from the exercise of employee stock options, net of payments for $12 million in income tax withholding associated with the settlement of employee stock-based awards.

Contractual Obligations

There were no material changes to our future minimum contractual obligations since December 31, 2019 as previously disclosed in our Annual Report on Form 10-K filed with the SEC on February 26, 2020.

On August 3, 2020, we extended our contract with DXC Technology to help reduce the fixed portion of our technology costs.

Under this extended contract, we are committed to contract minimums totaling approximately $560 million between the years 2021 and 2030 in addition to the amounts previously disclosed in our Annual Report on Form 10-K as filed with the SEC on February 26, 2020.

There were no material changes to our future minimum contractual obligations since December 31, 2019 as previously disclosed in our Annual Report on Form 10-K filed with the SEC on February 26, 2020 other than the contract extension described herein and our debt obligations discussed in Note 7.

Debt to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.

Off Balance Sheet Arrangements

We had no off balance sheet arrangements during the three months ended March 31, 2020 and year ended December 31, 2019.

We had no off balance sheet arrangements during the six months ended June 30, 2020 and year ended December 31, 2019.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis