Sabre Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains information that may constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “expects,” "outlook," “believes,” “may,” "intends," "provisional," "plans," “will,” “predicts,” “potential,” “anticipates,” “estimates,” "should,” “plans”, "could", "likely", "commit", "guidance", "anticipate", "incremental", "preliminary", "forecast", "continue", "strategy", "confidence", "momentum", "estimate", "objective", "project", "may", or the negative of these terms or other comparable terminology. The forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions and are subject to risks, uncertainties and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Certain of these risks, uncertainties and changes in circumstances are described in the "Risk Factors" section of this Quarterly Report on Form 10-Q and in the “Risk Factors” and “Forward-Looking Statements” sections included in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. You are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made. The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Overview We connect people and places with technology that reimagines the business of travel. We operate through three business segments: (i) Travel Network, our global business-to-business travel marketplace for travel suppliers and travel buyers, (ii) Airline Solutions, a broad portfolio of software technology products and solutions primarily for airlines, and (iii) Hospitality Solutions, an extensive suite of leading software solutions for hoteliers. Collectively, these offerings enable travel suppliers to better serve their customers across the entire travel lifecycle, from route planning to post-trip business intelligence and analytics. A significant portion of our revenue is generated through transaction-based fees that we charge to our customers. For Travel Network, this fee is in the form of a transaction fee for bookings on our GDS; for Airline Solutions and Hospitality Solutions, this fee is a recurring usage-based fee for the use of our Software-as-a-Service ("SaaS") and hosted systems, as well as upfront fees and professional service fees. 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. See Note 15. 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 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. 27 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; and • 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. 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, that will take place in the third quarter of 2020. See Note 15. 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. See Note 4. 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; and • 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. Given the uncertainties surrounding the duration of the outbreak and its impact on global travel, we cannot reasonably estimate the related financial impact to our full-year 2020 financial results, but we expect a net loss on both a U.S. GAAP and adjusted basis for the year ended December 31, 2020 despite the cost saving measures described above. 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. The CARES Act also modifies sections of the Internal Revenue Code of 1986, as amended ("IRC"). Certain IRC modifications relax limitations on deductions, which were enacted as part of the Tax Cuts and Jobs Act. At this time, we do not expect to participate in the CARES Act loan program for the aviation industry. 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"), 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 28 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 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. Factors Affecting our Results In addition to the "—Recent Developments Affecting our Results of Operations" above, a discussion of trends that we believe are the most significant opportunities and challenges currently impacting our business and industry is included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Results” in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. The discussion also includes management’s assessment of the effects these trends have had and are expected to have on our results of continuing operations. This information is not an exhaustive list of all of the factors that could affect our results and should be read in conjunction with the factors referred to in the sections entitled “Risk Factors” and "Forward-Looking Statements" included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Components of Revenues and Expenses Revenues Travel Network primarily generates revenues from Direct Billable Bookings processed on our GDS, adjusted for estimated cancellations of those bookings, as well as the sale of aggregated bookings data to carriers. Airline Solutions and Hospitality Solutions primarily generate revenue through upfront solution fees and recurring usage-based fees for the use of our software solutions hosted on secure platforms or deployed through our SaaS and through other professional service fees including Digital Experience ("DX"). Certain professional service fees are discrete sales opportunities that may have a high degree of variability from period to period, and we cannot guarantee that we will have such fees in the future consistent with prior periods. Airline Solutions also generates revenue through software licensing and maintenance fees. Recognition of license fees upon delivery has previously resulted and will continue to result in periodic fluctuations in revenue recognized. Cost of Revenue Cost of revenue incurred by Travel Network, Airline Solutions and Hospitality Solutions consists of expenses related to technology operations including hosting, third-party software and expensed research and development labor costs, other salaries and benefits, and allocated overhead such as facilities and other support costs. Cost of revenue for Travel Network also includes incentive consideration expense representing payments or other consideration to travel agencies for reservations made on our GDS which accrue on a monthly basis. Corporate cost of revenue includes expenses associated with our technology organization such as corporate systems and risk and security. Corporate cost of revenue also includes certain expenses such as stock-based compensation, restructuring charges, legal reserves and other items not identifiable with one of our segments. Depreciation and amortization included in cost of revenue is associated with property and equipment, amortization of capitalized implementation costs which relates to Airline Solutions and Hospitality Solutions, intangible assets for technology purchased through acquisitions or established with our take private transactions in 2007, and software developed for internal use that supports our revenue, businesses and systems. Cost of revenue also includes amortization of upfront incentive consideration representing upfront payments or other consideration provided to travel agencies for reservations made on our GDS which are capitalized and amortized over the expected life of the contract. 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, provision for expected credit losses, depreciation and amortization and other overhead costs. Intersegment Transactions We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. Airline Solutions and Hospitality Solutions pay fees to Travel Network for airline trips and hotel stays booked through our GDS. 29 Key Metrics “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 and for Air Bookings, are presented net of bookings cancelled within the period presented. Passengers Boarded (“PBs”) is the primary metric used by Airline Solutions to recognize SaaS and hosted revenue from recurring usage-based fees. The primary metric utilized by Hospitality Solutions is booking transactions processed through the Sabre Hospitality Solutions SynXis Central Reservation System (the "HS Central Reservation System"). These key metrics allow management to analyze customer volume over time for each of our three business segments to monitor industry trends and analyze performance. We believe that these key metrics are useful for investors and other third parties as indicators of our financial performance and industry trends. While these metrics are based on what we believe to be reasonable estimates of our transaction counts for the applicable period of measurement, there are inherent challenges associated with their measurement. In addition, we are continually seeking to improve our estimates of these metrics, and these estimates may change due to improvements or changes in our methodology. The following table sets forth these key metrics for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 % Change 2020 2019 % Change Travel Network Direct Billable Bookings - Air (8,923) 124,605 (107.2)% 63,900 263,166 (75.7)% Direct Billable Bookings - LGS 1,621 17,520 (90.7)% 14,551 33,896 (57.1)% Total Direct Billable Bookings (7,302) 142,125 (105.1)% 78,451 297,062 (73.6)% Airline Solutions Passengers Boarded 19,799 180,386 (89.0)% 187,174 366,563 (48.9)% Hospitality Solutions Central Reservation System Transactions 11,094 28,890 (61.6)% 32,113 51,914 (38.1)% Definitions of Non-GAAP Financial Measures We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this Quarterly Report on Form 10-Q, including Adjusted Gross Profit, Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income from continuing operations ("Adjusted Net (Loss) Income"), Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures. We define Adjusted Gross Profit as operating (loss) income adjusted for selling, general and administrative expenses, the cost of revenue portion of depreciation and amortization, restructuring and other costs, amortization of upfront incentive consideration, and stock-based compensation included in cost of revenue. 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 (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 (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. These non-GAAP financial measures are key metrics used by management and our board of directors to monitor our ongoing core operations because historical results have been significantly impacted by events that are unrelated to our core operations as a result of changes to our business and the regulatory environment. We believe that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate our ability to service debt obligations, fund capital expenditures and meet working capital requirements. We also believe that Adjusted Gross Profit, Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income and Adjusted EBITDA assist investors in company-to-company and period-to-period comparisons by excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the impact of depreciation and amortization expense. In addition, amounts derived from Adjusted EBITDA are a primary component of certain covenants under our senior secured credit facilities. 30 Adjusted Gross Profit, Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income, Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures are not recognized terms under GAAP. These non-GAAP financial measures and ratios based on them are unaudited and have important limitations as analytical tools, and should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating performance or cash flows from operating activities as measures of liquidity. These non-GAAP financial measures and ratios based on them exclude some, but not all, items that affect net income or cash flows from operating activities and these measures may vary among companies. Our use of these measures has limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are: • these non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation expense and amortization of acquired intangible assets; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted Gross Profit and Adjusted EBITDA do not reflect cash requirements for such replacements; • Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; • Free Cash Flow removes the impact of accrual-basis accounting on asset accounts and non-debt liability accounts, and does not reflect the cash requirements necessary to service the principal payments on our indebtedness; and • other companies, including companies in our industry, may calculate Adjusted Gross Profit, Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income, Adjusted EBITDA or Free Cash Flow differently, which reduces their usefulness as comparative measures. 31 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 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 (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 Adjustments: Acquisition-related amortization (2a) 16,509 16,011 33,310 31,995 Restructuring and other costs (8) 48,001 — 73,282 — Other, net (4) 6,098 2,479 53,584 4,349 Acquisition-related costs (6) 4,373 8,935 22,200 20,641 Litigation costs, net (5) 115 1,386 1,856 2,824 Stock-based compensation 8,762 18,295 26,339 33,989 Tax impact of adjustments (7) 1,669 (7,746) 4,751 (19,453) Adjusted Net (Loss) Income from continuing operations $ (358,003) $ 67,454 $ (437,979) $ 161,653 Adjusted Net (Loss) Income from continuing operations per share $ (1.30) $ 0.24 $ (1.59) $ 0.58 Diluted weighted-average common shares outstanding 275,693 275,483 274,865 276,596 Adjusted Net (Loss) Income from continuing operations $ (358,003) $ 67,454 $ (437,979) $ 161,653 Adjustments: Depreciation and amortization of property and equipment (2b) 68,028 79,209 137,541 154,557 Amortization of capitalized implementation costs (2c) 9,417 9,627 18,964 21,738 Amortization of upfront incentive consideration (3) 19,076 19,846 37,289 38,974 Interest expense, net 58,581 39,608 96,023 77,621 Remaining provision for income taxes (7,387) 19,891 (37,723) 43,441 Adjusted EBITDA $ (210,288) $ 235,635 $ (185,885) $ 497,984 Less: Depreciation and amortization (2) 93,954 104,847 189,815 208,290 Amortization of upfront incentive consideration (3) 19,076 19,846 37,289 38,974 Acquisition-related amortization (2a) (16,509) (16,011) (33,310) (31,995) Adjusted Operating (Loss) Income $ (306,809) $ 126,953 $ (379,679) $ 282,715 32 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 June 30, 2020 Travel Network Airline Solutions Hospitality Solutions Corporate Total Operating loss $ (182,832) $ (68,309) $ (19,409) $ (113,520) $ (384,070) Add back: Selling, general and administrative 31,613 20,148 8,407 56,395 116,563 Cost of revenue adjustments: Depreciation and amortization (2) 21,269 37,144 10,234 6,346 74,993 Restructuring and other costs (8) — — — 40,752 40,752 Amortization of upfront incentive consideration (3) 19,076 — — — 19,076 Stock-based compensation — — — 3,686 3,686 Adjusted Gross Profit (110,874) (11,017) (768) (6,341) (129,000) Selling, general and administrative (31,613) (20,148) (8,407) (56,395) (116,563) Equity method loss (499) — — — (499) Selling, general and administrative adjustments: Depreciation and amortization (2) 3,365 2,748 1,124 11,724 18,961 Restructuring and other costs (8) — — — 7,249 7,249 Acquisition-related costs (6) — — — 4,373 4,373 Litigation costs, net (5) — — — 115 115 Stock-based compensation — — — 5,076 5,076 Adjusted EBITDA (139,621) (28,417) (8,051) (34,199) (210,288) Less: Depreciation and amortization (2) 24,634 39,892 11,358 18,070 93,954 Amortization of upfront incentive consideration (3) 19,076 — — — 19,076 Acquisition-related amortization (2a) — — — (16,509) (16,509) Adjusted Operating Loss $ (183,331) $ (68,309) $ (19,409) $ (35,760) $ (306,809) Three Months Ended June 30, 2019 Travel Network Airline Solutions Hospitality Solutions Corporate Total Operating income (loss) $ 159,384 $ 22,660 $ (5,746) $ (94,385) $ 81,913 Add back: Selling, general and administrative 45,482 22,442 10,171 76,610 154,705 Cost of revenue adjustments: Depreciation and amortization (2) 27,581 40,699 12,342 5,971 86,593 Amortization of upfront incentive consideration (3) 19,846 — — — 19,846 Stock-based compensation — — — 7,381 7,381 Adjusted Gross Profit 252,293 85,801 16,767 (4,423) 350,438 Selling, general and administrative (45,482) (22,442) (10,171) (76,610) (154,705) Equity method income 413 — — — 413 Selling, general and administrative adjustments: Depreciation and amortization (2) 3,140 2,586 1,278 11,250 18,254 Acquisition-related costs (6) — — — 8,935 8,935 Litigation costs, net (5) — — — 1,386 1,386 Stock-based compensation — — — 10,914 10,914 Adjusted EBITDA 210,364 65,945 7,874 (48,548) 235,635 Less: Depreciation and amortization (2) 30,721 43,285 13,620 17,221 104,847 Amortization of upfront incentive consideration (3) 19,846 — — — 19,846 Acquisition-related amortization (2a) — — — (16,011) (16,011) Adjusted Operating Income (Loss) $ 159,797 $ 22,660 $ (5,746) $ (49,758) $ 126,953 33 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) Add back: 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) Less: 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 Add back: 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 Less: 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 34 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, 2020 2019 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) Six Months Ended June 30, 2020 2019 Cash (used in) provided by operating activities $ (395,036) $ 257,661 Additions to property and equipment (39,333) (67,196) Free Cash Flow $ (434,369) $ 190,465 ______________________________ (1) Net income attributable to non-controlling interests represents an adjustment to include earnings allocated to non-controlling interests held in (i) Sabre Travel Network Middle East of 40%, (ii) Sabre Seyahat Dagitim Sistemleri A.S. of 40%, (iii) Sabre Travel Network Lanka (Pte) Ltd of 40%, and (iv) Sabre Bulgaria of 40%. (2) Depreciation and amortization expenses: (a) Acquisition-related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date. (b) Depreciation and amortization of property and equipment includes software developed for internal use as well as amortization of contract acquisition costs. (c) Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model. (3) Our Travel Network business at times provides upfront incentive consideration to travel agency subscribers at the inception or modification of a service contract, which are capitalized and amortized to cost of revenue over an average expected life of the service contract, generally over three to ten years. This consideration is made with the objective of increasing the number of clients or to ensure or improve customer loyalty. These service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed the cost of the incentive consideration provided up front. 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 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. See Note 3. Acquisitions for further detail regarding the Farelogix acquisition. (5) Litigation costs, net represent charges associated with antitrust litigation and other foreign non-income tax contingency matters. See Note 13. Contingencies , to our consolidated financial statements. (6) Acquisition-related costs represent fees and expenses incurred associated with the 2018 agreement to acquire Farelogix. See Note 3. 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, valuation allowance assessments and other items. (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. See Note 4. Restructuring Activities for further details. 35 Results of Operations The following table sets forth our consolidated statement of operations data for each of the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (Amounts in thousands) Revenue $ 83,044 $ 1,000,006 $ 742,021 $ 2,049,367 Cost of revenue 350,551 763,388 962,066 1,550,951 Selling, general and administrative 116,563 154,705 315,436 306,096 Operating (loss) income (384,070) 81,913 (535,481) 192,320 Interest expense, net (58,581) (39,608) (96,023) (77,621) Equity method (loss) income (499) 413 (1,185) 946 Other expense, net (6,098) (2,479) (53,584) (4,349) (Loss) income from continuing operations before income taxes (449,248) 40,239 (686,273) 111,296 Provision for income taxes (5,718) 12,145 (32,972) 23,988 (Loss) Income from continuing operations $ (443,530) $ 28,094 $ (653,301) $ 87,308 Three Months Ended June 30, 2020 and 2019 Revenue Three Months Ended June 30, 2020 2019 Change (Amounts in thousands) Travel Network $ (33,262) $ 724,632 $ (757,894) (105) % Airline Solutions 89,524 211,833 (122,309) (58) % Hospitality Solutions 29,002 73,876 (44,874) (61) % Total segment revenue 85,264 1,010,341 (925,077) (92) % Eliminations (2,220) (10,335) 8,115 79 % Total revenue $ 83,044 $ 1,000,006 $ (916,962) (92) % 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; and • 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. 36 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. 37 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 Revenue 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 $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 $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 49% to 187 million for the six months ended June 30, 2020; and • 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. 38 Cost of Revenue Six Months Ended June 30, 2020 2019 Change (Amounts in thousands) Travel Network $ 393,144 $ 963,627 $ (570,483) (59) % Airline Solutions 228,398 260,827 (32,429) (12) % Hospitality Solutions 83,312 114,230 (30,918) (27) % Eliminations (10,066) (20,687) 10,621 51 % Total segment cost of revenue 694,788 1,317,997 (623,209) (47) % Corporate 77,623 22,470 55,153 245 % Depreciation and amortization 152,366 171,510 (19,144) (11) % Amortization of upfront incentive consideration 37,289 38,974 (1,685) (4) % Total cost of revenue $ 962,066 $ 1,550,951 $ (588,885) (38) % 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. 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 $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 $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 Six Months Ended June 30, 2020 2019 Change (Amounts in thousands) Selling, general and administrative $ 315,436 $ 306,096 $ 9,340 3 % 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. 39 Other expense, net Six Months Ended June 30, 2020 2019 Change (Amounts in thousands) Other expense, net $ 53,584 $ 4,349 $ 49,235 ** ** not meaningful 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. See Note 3. Acquisitions for further detail regarding the Farelogix acquisition. Provision for Income Taxes Six Months Ended June 30, 2020 2019 Change (Amounts in thousands) Provision for income taxes $ (32,972) $ 23,988 $ (56,960) (237) % 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. federal statutory income tax rate primarily results from our geographic mix of taxable income in various tax jurisdictions, tax permanent differences and tax credits. Liquidity and Capital Resources Our principal sources of liquidity are: (i) cash flows from operations, (ii) cash and cash equivalents and (iii) borrowings under our $400 million revolving credit facility ("Revolver") (see “—Senior Secured Credit Facilities”). Borrowing availability under our Revolver is reduced by our outstanding letters of credit and restricted cash collateral. 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 Available balance under the Revolver 13,049 388,396 Reductions to the Revolver: Revolver outstanding balance 375,000 — Outstanding letters of credit 11,951 11,604 We consider cash equivalents to be highly liquid investments that are readily convertible into cash. Securities with contractual maturities of three months or less, when purchased, are considered cash equivalents. We record changes in a book overdraft position, in which our bank account is not overdrawn but recently issued and outstanding checks result in a negative general ledger balance, as cash flows from financing activities. 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 June 30, 2020 and December 31, 2019. As of December 31, 2018, we have utilized substantially all of our U.S. federal NOLs and a portion of our available U.S. federal tax credits. 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 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. Liquidity Outlook The reduction in revenues as the result of COVID-19 has significantly adversely affected our liquidity. 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. 40 We believe that approximately two-thirds of our cost structure is adjustable in the near-term, comprised largely of incentive expenses that decline proportionally with bookings and including other variable expenses that are subject to the cost savings measures described below. Given the uncertainties surrounding the duration and effects of COVID-19 on transaction volumes in the global travel industry, particularly air travel transaction volumes, including from airlines’ insolvency or suspension of service or aircraft groundings, we cannot provide assurance that the assumptions used to estimate our liquidity requirements will be accurate. 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 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 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. The Revolver will expire, at the earliest, on July 1, 2022. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations. Our ability to make payments on and to refinance our indebtedness, and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control, including the impacts of COVID-19. See “Risk Factors—The ongoing impact of the COVID-19 outbreak on our business and results of operations is highly uncertain" and "—We may require more cash than we generate in our operating activities, and additional funding on reasonable terms or at all may not be available.” Given the impacts of COVID-19 as discussed above, we have currently suspended share repurchases under our Share Repurchase Program as well as the payment of quarterly cash dividends on our common stock, effective with respect to the dividends occurring after the March 30, 2020 payment. See “—Recent Events Impacting our Liquidity and Capital Resources.” We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and this negative impact may continue well beyond the containment of the outbreak. On an ongoing basis, we will evaluate and consider strategic acquisitions, divestitures, joint ventures, equity method investments, repurchasing shares of our common stock (including pursuant to our multi-year $500 million Share Repurchase Program) or our outstanding debt obligations in open market or in privately negotiated transactions, as well as other transactions we believe may create stockholder value or enhance financial performance. These transactions may require cash expenditures or generate proceeds and, to the extent they require cash expenditures, may be funded through a combination of cash on hand, debt or equity offerings, or utilization of our Revolver. Recent Events Impacting Our Liquidity and Capital Resources 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. See Note 7. 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. The Secured Notes bear interest at a rate of 9.250% per annum and interest payments are due semi-annually on April 15 and October 15 of each year, beginning with October 15, 2020. The Secured Notes mature on April 15, 2025. The Exchangeable Notes are senior, unsecured obligations of Sabre GLBL, accrue interest payable semi-annually in arrears and mature on April 15, 2025, unless earlier repurchased or exchanged. The Exchangeable Notes are exchangeable at their holders’ election, under specified circumstances, into consideration based on Sabre common stock. This consideration consists of shares of Sabre common stock, cash, or a mixture of the two at Sabre GLBL’s election. Upon any future occurrence of a “fundamental change” (as defined in the indenture governing the Exchangeable Notes), holders may require Sabre GLBL to repurchase their Exchangeable Notes at a price equal to principal amount plus accrued and unpaid interest. The Exchangeable Notes bear interest at a rate of 4.00% per annum and interest payments are due semi-annually on April 15 and October 15 of each year, beginning with October 15, 2020. The Exchangeable Notes are guaranteed on a senior unsecured basis by Sabre and Sabre Holdings. The net proceeds from the sales of the Notes are being used for general corporate purposes. 41 Cost Reduction Efforts Given the market conditions as the result of COVID-19, 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. See "—Recent Developments Affecting our Results of Operations" for further information. Farelogix Acquisition On August 20, 2019, the U.S. 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 9, 2020, the U.K. Competition and Markets Authority ("CMA") blocked the acquisition following its Phase 2 investigation. 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. Dividends 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. Share Repurchase Program In February 2017, we announced the approval of the Share Repurchase Program to purchase up to $500 million of Sabre's common stock outstanding. Repurchases under the Share Repurchase Program may take place in the open market or privately negotiated transactions. 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 June 30, 2020. Senior Secured Credit Facilities On August 23, 2017, Sabre GLBL entered into a Fourth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement, Term Loan A Refinancing Amendment to our Amended and Restated Credit Agreement, and Second Revolving Facility Refinancing Amendment to our Amended and Restated Credit Agreement (the “2017 Refinancing”). The 2017 Refinancing included a $400 million Revolver as well as the application of the proceeds of the approximately $1,891 million incremental Term Loan B facility (“Term Loan B”) and $570 million Term Loan A facility (“Term Loan A”). The Revolver and the Term Loan A mature on July 1, 2022. The applicable margins for the Term Loan A and the Revolver were reduced to (i) between 2.50% and 1.75% per annum for Eurocurrency rate loans and (ii) between 1.50% and 0.75% per annum for base rate loans, in each case with the applicable margin for any quarter reduced by 25 basis points (up to 75 basis points total) if the Senior Secured First-Lien Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than 3.75 to 1.0, 3.00 to 1.0, or 2.25 to 1.0, respectively. Term Loan B matures on February 22, 2024. The applicable margins for the Term Loan B were reduced to 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate loans. On March 2, 2018, Sabre GLBL entered into a Fifth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement to refinance and modify the terms of the Term Loan B, resulting in a reduction of the applicable margins for the Term Loan B to 2.00% per annum for Eurocurrency rate loans and 1.00% per annum for base rate loans. We incurred no additional indebtedness as a result of this transaction. Under the Amended and Restated Credit Agreement, the loan parties are subject to certain customary non-financial covenants, including certain restrictions on incurring certain types of indebtedness, creation of liens on certain assets, making of certain investments, and payment of dividends, as well as a maximum leverage ratio. 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. 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 42 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. This percentage requirement may decrease or be eliminated if certain leverage ratios are achieved. Based on our results for the year ended December 31, 2018, we were not required to make an excess cash flow payment in 2019, and no excess cash flow payment is required in 2020 with respect to our results for the year ended December 31, 2019. We are further required to pay down the term loan with proceeds from certain asset sales or borrowings as defined in the Amended and Restated Credit Agreement. Tax Receivable Agreement 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”). 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. 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 We maintain and make enhancements to our products, services, technologies and systems in response to technological developments, industry standards, trends, and customer demands. We deploy resources in research and development in order to help maintain a competitive advantage and deliver innovation to the marketplace. Software developed for internal use includes costs incurred to enhance our infrastructure, software applications and reservation systems. 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 $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. Cash Flows Six Months Ended June 30, 2020 2019 (Amounts in thousands) 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) Cash used in discontinued operations (1,802) (1,196) Effect of exchange rate changes on cash and cash equivalents 2,503 256 Increase (decrease) in cash and cash equivalents $ 870,112 $ (112,417) 43 Operating Activities 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 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 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; • fourth and final annual payment on the TRA liability for $72 million, excluding interest; • payment of $39 million in dividends on our common stock; • 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. 44 For the six months ended June 30, 2019, we used $293 million for financing activities. Significant highlights of our financing activities include: • 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-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 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 six months ended June 30, 2020 and year ended December 31, 2019. Recent Accounting Pronouncements Information related to Recent Accounting Pronouncements is included in Note 1. General Information, to our consolidated financial statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, which is incorporated herein by reference. Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses and other financial information. Actual results may differ significantly from these estimates, and our reported financial condition and results of operations could vary under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard. We regard an accounting estimate underlying our financial statements as a “critical accounting estimate” if the accounting estimate requires us to make assumptions about matters that are uncertain at the time of estimation and if changes in the estimate are reasonably likely to occur and could have a material effect on the presentation of financial condition, changes in financial condition, or results of operations. For a discussion of the accounting policies involving material estimates and assumptions that we believe are most critical to the preparation of our financial statements, how we apply such policies and how results differing from our estimates and assumptions would affect the amounts presented in our financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Since the date of the annual report on Form 10-K filed with the SEC on February 26, 2020, there have been no material changes to our critical accounting estimates other than to update the critical accounting estimate disclosures for our allowance for credit losses to align with the adoption of Accounting Standards Codification ("ASC") 326, Credit Impairment. Allowance for Credit Losses We develop and document our methodology used in determining the allowance for credit losses at the portfolio segment level. Within the travel portfolio segment, we identify airlines, hoteliers and travel agencies as each presenting unique risk characteristics associated with historical credit loss patterns unique to each and we determine the adequacy of our allowance for credit loss by assessing the risks and losses inherent in our receivables related to each. 45 We evaluate the collectability of our receivables based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, such as bankruptcy filings or failure to pay amounts due to us or others, we specifically reserve for bad debts against amounts due to reduce the recorded receivable to the amount we reasonably believe will be collected. For all other customers, we record reserves for receivables, including unbilled receivables and contract assets, based on historical experience and the length of time the receivables are past due. The estimate of credit losses is developed by analyzing historical twelve-month collection rates and adjusting for current customer-specific factors indicating financial instability and other macroeconomic factors that correlate with the expected collectability of our receivables. Receivables are considered to be delinquent when contractual payment terms are exceeded. All receivables aged over twelve months are fully reserved. Receivables are written off against the allowance when it is probable that all remaining contractual payments will not be collected as evidenced by factors such as the extended age of the balance, the exhaustion of collection efforts, and the lack of ongoing contact or billing with the customer. See Note 6. Credit Losses for further considerations involved in the development of this estimate.