What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-10 · 317 added, 221 removed, 783 unchanged (41% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Cost of revenue 115,426 419,385 458,068 1,320,720

Technology costs 276,362 322,563 883,837 964,397

Selling, general and administrative 119,626 128,791 447,011 442,669

2 unchanged sentences

Interest expense, net ( 67,651 ) ( 39,743 ) ( 163,674 ) ( 117,364 )

Loss on extinguishment of debt ( 10,333 ) — ( 10,333 ) —

Equity method (loss) income ( 460 ) 1,027 ( 1,645 ) 1,973

4 unchanged sentences

(Loss) income from continuing operations ( 309,560 ) 65,180 ( 962,861 ) 152,488

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

Loss from discontinued operations, net of tax ( 533 ) ( 596 ) ( 3,331 ) ( 698 )

Net (loss) income ( 310,093 ) 64,584 ( 966,192 ) 151,790

Net (loss) income attributable to noncontrolling interests ( 71 ) 1,606 712 2,518

Net income attributable to noncontrolling interests 125 771 837 3,289

Net (loss) income attributable to Sabre Corporation ( 310,218 ) 63,813 ( 967,029 ) 148,501

Preferred stock dividends 2,231 — 2,231 —

Net (loss) income attributable to common stockholders $ ( 312,449 ) $ 63,813 $ ( 969,260 ) $ 148,501

1 unchanged sentence

(Loss) income from continuing operations $ ( 1.07 ) $ 0.24 $ ( 3.44 ) $ 0.54

(Loss) income from discontinued operations — — ( 0.01 ) —

Loss from discontinued operations — — ( 0.01 ) —

Net (loss) income per common share $ ( 1.07 ) $ 0.24 $ ( 3.45 ) $ 0.54

1 unchanged sentence

(Loss) income from continuing operations $ ( 1.07 ) $ 0.23 $ ( 3.44 ) $ 0.54

(Loss) income from discontinued operations — — ( 0.01 ) —

Loss from discontinued operations — — ( 0.01 ) —

Net (loss) income per common share $ ( 1.07 ) $ 0.23 $ ( 3.45 ) $ 0.54

7 unchanged sentences

(In thousands)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net (loss) income $ ( 310,093 ) $ 64,584 $ ( 966,192 ) $ 151,790

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments ("CTA") 4,439 ( 4,344 ) 4,732 ( 5,432 )

Retirement-related benefit plans:

Net actuarial gain, net of taxes of $( 1,206 )

Net actuarial loss, net of taxes of $ 3,524 , $ — , $ 2,318 , and $ —

( 12,101 ) — ( 7,960 ) —

Pension settlement, net of taxes of $( 3,055 ), $ — , $( 3,055 ), and $ —

10,488 — 10,488 —

Amortization of prior service credits, net of taxes of $ 80 , $ 80 , $ 241 , and $ 241

8 unchanged sentences

Net change in derivatives, net of tax 6,724 ( 5,322 ) ( 7,688 ) ( 17,395 )

Share of other comprehensive loss of equity method investments ( 145 ) ( 447 ) ( 798 ) ( 419 )

Share of other comprehensive income (loss) of equity method investments 258 21 ( 540 ) ( 398 )

Other comprehensive income (loss) 11,329 ( 8,210 ) 3,203 ( 19,902 )

6 unchanged sentences

(In thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets

30 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.01 par value, 225,000 authorized, 3,340 and no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively;

aggregate liquidation value of $ 334,000 and $ — as of September 30, 2020 and December 31, 2019, respectively

Common Stock:

1 unchanged sentence

1,000,000 authorized shares;

297,131 and 294,319 shares issued, 275,872 and 273,733 shares outstanding at June 30, 2020 and December 31, 2019, respectively

338,499 and 294,319 shares issued, 317,233 and 273,733 shares outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 3,027,726 2,317,544

Treasury Stock, at cost, 21,259 and 20,587 shares at June 30, 2020 and December 31, 2019, respectively

Treasury Stock, at cost, 21,266 and 20,587 shares at September 30, 2020 and December 31, 2019, respectively

( 474,165 ) ( 468,618 )

8 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating Activities

7 unchanged sentences

Acquisition termination fee 24,811 —

Pension settlement charge 13,543 —

Amortization of debt discount and debt issuance costs 12,661 2,979

Loss on extinguishment of debt 10,333 —

Loss from discontinued operations 3,331 698

18 unchanged sentences

Proceeds of borrowings from lenders 2,345,000 45,000

Payments on Tax Receivable Agreement ( 71,958 ) ( 101,482 )

Cash dividends paid to common stockholders ( 38,544 ) ( 76,875 )

Proceeds from issuance of preferred stock, net 322,885 —

Proceeds from issuance of common stock, net 275,003 —

Payments on borrowings from lenders ( 894,613 ) ( 87,608 )

Payments of debt issuance costs ( 29,473 ) —

Net payments on the settlement of equity-based awards ( 5,241 ) ( 7,002 )

Other financing activities ( 3,686 ) ( 6,325 )

Payments on Tax Receivable Agreement ( 71,958 ) ( 101,482 )

Debt prepayment fees and issuance costs ( 54,158 ) —

Cash dividends paid to common shareholders ( 38,544 ) ( 115,185 )

Net payment on the settlement of equity-based awards ( 5,298 ) ( 5,738 )

Repurchase of common stock — ( 77,636 )

Other financing activities ( 4,513 ) ( 8,775 )

Cash provided by (used in) financing activities 1,873,804 ( 351,424 )

11 unchanged sentences

Stockholders’ Equity (Deficit)

Common Stock Additional

Preferred Stock Common Stock Additional

Capital Treasury Stock Retained

3 unchanged sentences

Stockholders'

Shares Amount Shares Amount

Shares Amount Shares Amount Shares Amount

Balance at December 31, 2019 — $ — 294,319,417 $ 2,943 $ 2,317,544 20,586,852 $ ( 468,618 ) $ ( 763,482 ) $ ( 149,306 ) $ 8,588 $ 947,669

4 unchanged sentences

Stock-based compensation expense — — — — 17,577 — — — — — 17,577

— — 17,577 — — — — — 17,577

Adoption of New Accounting Standards — — — — — — — ( 7,591 ) — — ( 7,591 )

5 unchanged sentences

Balance at June 30, 2020 — $ — 297,130,702 $ 2,971 $ 2,411,716 21,258,581 $ ( 474,105 ) $ ( 1,466,428 ) $ ( 157,432 ) $ 9,300 $ 326,022

Comprehensive loss — — — — — — — ( 310,218 ) 11,329 125 ( 298,764 )

Issuance of preferred stock, net 3,340,000 33 — — 322,852 — — — — — 322,885

Issuance of common stock, net — — 41,071,429 411 274,592 — — — — — 275,003

Accrued preferred stock dividend (2)

— — — — — — — ( 2,231 ) — — ( 2,231 )

Settlement of stock-based awards — — 297,150 3 — 7,278 ( 60 ) — — — ( 57 )

Stock-based compensation expense — — — — 18,566 — — — — — 18,566

Balance at September 30, 2020 3,340,000 $ 33 338,499,281 $ 3,385 $ 3,027,726 21,265,859 $ ( 474,165 ) $ ( 1,778,877 ) $ ( 146,103 ) $ 9,425 $ 641,424

(1) A quarterly cash dividend of $ 0.14 per share on our common stock.

(2) Our mandatory convertible preferred stock accumulates cumulative dividends at an annual rate of 6.50 %.

The first cash dividend of $ 1.7514 per share is payable on December 1, 2020.

Stockholders’ Equity (Deficit)

14 unchanged sentences

Stock-based compensation expense — — 15,694 — — — — — 15,694

— — 15,694 — — — — — 15,694

Balance at March 31, 2019 293,909,061 $ 2,939 $ 2,262,424 18,280,416 $ ( 420,301 ) $ ( 750,310 ) $ ( 137,252 ) $ 8,099 $ 965,599

6 unchanged sentences

Dividends paid to non-controlling interest on subsidiary common stock — — — — — — — ( 2,553 ) ( 2,553 )

— — — — — — — ( 2,553 ) ( 2,553 )

Balance at June 30, 2019 294,159,564 $ 2,942 $ 2,281,995 20,527,812 $ ( 467,232 ) $ ( 760,753 ) $ ( 144,416 ) $ 7,152 $ 919,688

Comprehensive income — — — — — 63,813 ( 8,210 ) 771 56,374

Common stock dividends (1)

— — — — — ( 38,310 ) — — ( 38,310 )

Settlement of stock-based awards 266,676 2 2,397 47,815 ( 1,134 ) — — — 1,265

Stock-based compensation expense — — 17,094 — — — — — 17,094

Balance at September 30, 2019 294,426,240 $ 2,944 $ 2,301,486 20,575,627 $ ( 468,366 ) $ ( 735,250 ) $ ( 152,626 ) $ 7,923 $ 956,111

(1) A quarterly cash dividend of $ 0.14 per share on our common stock.

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In these consolidated financial statements, references to “Sabre,” the “Company,” “we,” “our,” “ours” and “us” refer to Sabre Corporation and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.

We connect people and places with technology that reimagines the business of travel.

We operate our business and present our results through three business segments:

(i) Travel Network, our global 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.

Strategic Realignment— We connect people and places with technology that reimagines the business of travel.

The COVID-19 pandemic has caused major shifts in the travel ecosystem resulting in the changing needs of our airline, hotel and agency customers.

As a result, we accelerated the organizational changes we began in 2018 to address the changing travel landscape through a strategic realignment of our airline and agency-focused businesses and to respond to the impacts of the COVID-19 pandemic on our business and cost structure.

The organizational changes involve the creation of a functional-oriented structure to further enhance our long-term growth opportunities and help deliver new retailing, distribution and fulfillment solutions to the travel marketplace.

As a result of our strategic realignment, we now operate our business and present our results through two business segments:

(i) Travel Solutions, our global travel solutions for travel suppliers and travel buyers, including a broad portfolio of software technology products and solutions for airlines, and (ii) Hospitality Solutions, an extensive suite of leading software solutions for hoteliers.

There have been no changes to the historical Hospitality Solutions reporting segment.

Additionally, we have reclassified expenses on our statement of operations to provide additional clarification on our costs by separating technology costs from cost of revenue and moving certain expenses previously classified as cost of revenue to selling, general and administrative to align with the current leadership and operational organizational structure.

Within our segments and results of operations, cost of revenue primarily consists of costs associated with the delivery and distribution of our products and services, including employee-related costs for our delivery, customer operations and call center teams, and transactional-related costs, including travel agency incentive consideration for reservations made on our global distribution system ("GDS") for Travel Solutions and GDS transaction fees for Hospitality Solutions.

Technology costs consist of expenses related to technology operations including data processing and hosting, third-party software, maintenance and expensed research and development labor costs associated with our development teams responsible for the maintenance and enhancement of our existing products and the development of new products and services.

Selling, general and administrative expenses consist of professional service fees, certain settlement charges or reimbursements, costs to defend legal disputes, provision for expected credit losses, other overhead costs, and personnel-related expenses, including stock-based compensation, for employees engaged in sales, sales support, account management and who administratively support the business in finance, legal, human resources, information technology and communications.

For the three months ended September 30, 2019, we reclassified $ 298 million from cost of revenue and $ 25 million from selling, general and administrative to technology costs.

Additionally, for the three months ended September 30, 2019, we reclassified $ 34 million from cost of revenue to selling, general and administrative.

For the nine months ended September 30, 2019, we reclassified $ 885 million from cost of revenue and $ 79 million from selling, general and administrative to technology costs.

Additionally, for the nine months ended September 30, 2019, we reclassified $ 96 million from cost of revenue to selling, general and administrative.

Recent Events— The travel industry continues to be adversely affected by the global health crisis due to the outbreak of the coronavirus ("COVID-19") in January 2020, as well as by government directives that have been enacted to slow the spread of the virus.

As expected, this pandemic 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 compared to the prior year.

Lower Travel Network volumes resulted in a material decline in incentive consideration costs, as expected.

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

Lower GDS volumes resulted in a material decline in incentive consideration costs, as expected.

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

We have responded with measures to increase our cash position, including our previously disclosed suspension of dividends and share repurchases under the Share Repurchase Program, borrowing under our existing revolving credit facility, and the completion of debt offerings.

Debt for further information.

We have responded with measures to increase our cash position, including our previously disclosed suspension of common stock dividends and share repurchases under the Share Repurchase Program, borrowing under our existing revolving credit facility, and the completion of debt and equity offerings.

Debt and Note 11.

Stock and Stockholders' Equity for further information.

We believe that we have resources to sufficiently fund our liquidity requirements over at least the next twelve months;

however, given the magnitude of travel decline and the unknown duration of the COVID-19 impact, we will continue to monitor our liquidity levels and take additional steps should we determine they are necessary.

Additionally, the COVID-19 pandemic has caused major shifts in the travel ecosystem resulting in the changing needs of our airline, hotel and agency customers.

As a result, 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.

During the third quarter of 2020, we will substantially complete our implementation of these initiatives and other measures to support the new organizational structure.

In connection with these measures, we recorded a $ 48 million charge associated with these restructuring activities in the second quarter of 2020.

During the six months ended June 30, 2020, we recorded a charge of $ 73 million in connection with these restructuring activities.

As noted above, we substantially completed the strategic realignment of our airline and agency-focused businesses during the third quarter of 2020 to address the changing travel landscape and to respond to the impacts of the COVID-19 pandemic on our business and cost structure.

During the nine months ended September 30, 2020, we recorded a charge of $ 74 million in connection with these restructuring activities.

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

Subsequent Events for further information on the organizational impact this restructuring will have on our business beginning in the third quarter.

The inputs into our judgments and estimates consider the economic implications of COVID-19 on our critical and significant accounting estimates.

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As a result, our cancellation reserve as of June 30, 2020 was further adjusted for the significant effect that COVID-19 has had on the travel industry and the resulting volume of airline travel cancellations.

Given the unprecedented amount of air booking cancellations in the first half of 2020, we expect variability in the amount of our cancellation reserve in future periods as estimates of cancellations may differ from historical and recent experience.

Our air booking cancellation reserve totaled $ 60 million at June 30, 2020.

Revenue from Contracts with Customers for further information regarding the impact of cancellations on revenue during the second quarter.

Additionally, our provision for expected credit losses for the six months ended June 30, 2020 was $ 48 million, primarily related to fully reserving for aged balances related to certain customers, 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.

During the third quarter of 2020, our estimated reserve decreased due to actual cancellations being less than expected as of the end of the second quarter, and a decrease in new bookings during the third quarter.

The combination of reduced new bookings, estimates for bookings expected to travel, continued mix toward domestic bookings and consumed cancellations during the quarter resulted in a decline in the cancellation reserve from $ 60 million as of June 30, 2020 to $ 33 million as of September 30, 2020 .

Given the unprecedented amount of air booking cancellations during 2020, we expect variability in the amount of our cancellation reserve in future periods as estimates of cancellations may differ from historical and recent experience.

Revenue from Contracts with Customers for further information regarding the impact of cancellations on revenue during the third quarter.

Additionally, our provision for expected credit losses for the nine months ended September 30, 2020 was $ 58 million, primarily related to fully reserving for aged balances related to certain customers, 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.

Credit Losses.

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 in our estimates will be accurate.

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

We updated our goodwill assessment on a qualitative basis and reviewed our other long-lived assets including intangible assets as of September 30, 2020, and did not identify any material impairments.

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

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In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2020.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2020.

The accompanying interim financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 26, 2020 .

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Given the uncertainties surrounding the duration and effects of COVID-19, we cannot provide assurance that the assumptions used in our estimates will be accurate.

Share Repurchase Program— In February 2017, we announced the approval of a multi-year share repurchase program (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 no t 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 certain 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.

Adoption of New Accounting Standards

2 unchanged sentences

The updated standard is effective for all entities upon issuance and we will apply the amendments prospectively through December 31, 2022.

There was no impact to our consolidated financial statements for the three and six months ended June 30, 2020 as a result of adopting this standard.

There was no impact to our consolidated financial statements for the three and nine months ended September 30, 2020 as a result of adopting this standard.

Our current hedging contracts do not extend past December 31, 2021.

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The standard requires that capitalized implementation costs related to a hosting arrangement that is a service contract be amortized over the term of the hosting arrangement, beginning when the component of the hosting arrangement is ready for its intended use, similar to requirements in guidance on software developed for internal use.

In addition, costs incurred during the preliminary project and post-

implementation phases are expensed as they are incurred.

In addition, costs incurred during the preliminary project and post-implementation phases are expensed as they are incurred.

We adopted this standard prospectively in the first quarter of 2020, which did not have a material impact on our consolidated financial statements.

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The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020.

We are evaluating the impact this standard will have on our consolidated financial statements.

The standard provides for the option of full retrospective transition on January 1, 2021.

Although we are still evaluating the impact of the updated guidance and the effects on our financial statements, we anticipate using full retrospective transition on January 1, 2021 to account for the Exchangeable Notes on a whole-instrument basis.

As a result, we anticipate long-term debt to increase approximately $ 88 million, additional paid-in capital to decrease $ 68 million, and deferred taxes to decrease by $ 20 million on January 1, 2021 and we will retrospectively reduce pre-tax interest expense.

In December 2019, the FASB issued updated guidance which simplifies the accounting for income taxes, eliminates certain exceptions within existing income tax guidance, and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

3 unchanged sentences

Contract Balances

Revenue recognition for a significant portion of our revenue coincides with normal billing terms, including Travel Network's transactional revenues, and Airline Solutions' and Hospitality Solutions' Software-as-a-Service ("SaaS") and hosted revenues.

Revenue recognition for a significant portion of our revenue coincides with normal billing terms, including our transactional revenues, Software-as-a-Service ("SaaS") revenues, and hosted revenues.

Timing differences among revenue recognition, unconditional rights to bill, and receipt of contract consideration may result in contract assets or contract liabilities.

The following table presents our assets and liabilities with customers as of June 30, 2020 and December 31, 2019 (in thousands):

Account Consolidated Balance Sheet Location June 30, 2020 December 31, 2019

The following table presents our assets and liabilities with customers as of September 30, 2020 and December 31, 2019 (in thousands):

Account Consolidated Balance Sheet Location September 30, 2020 December 31, 2019

Contract assets and customer advances and discounts (1)

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________________________________

(1) Includes contract assets of $ 5 million and $ 6 million for June 30, 2020 and December 31, 2019, respectively.

During the six months ended June 30, 2020, we recognized revenue of approximately $ 17 million from contract liabilities that existed as of January 1, 2020.

(1) Includes contract assets of $ 8 million and $ 6 million for September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2020, we recognized revenue of approximately $ 21 million from contract liabilities that existed as of January 1, 2020.

Our long-term trade unbilled receivables, net relate to license fees billed ratably over the contractual period and recognized when the customer gains control of the software.

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The following table presents our revenues disaggregated by business (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Air $ ( 69,732 ) $ 584,424 $ 245,585 $ 1,224,902

Lodging, Ground and Sea 10,081 96,969 82,512 187,256

Other 26,389 43,239 66,344 86,442

Total Travel Network ( 33,262 ) 724,632 394,441 1,498,600

Reservation Systems 32,229 126,236 137,360 253,464

Commercial and Operations Solutions 56,986 84,230 130,516 167,788

Other 309 1,367 1,533 3,508

Total Airline Solutions 89,524 211,833 269,409 424,760

Distribution $ 104,594 $ 673,405 $ 451,183 $ 2,092,362

IT Solutions 132,424 245,626 449,685 750,029

Total Travel Solutions 237,018 919,031 900,868 2,842,391

SynXis Software and Services 41,287 65,962 118,767 194,974

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Total Sabre Revenue $ 278,365 $ 984,199 $ 1,020,386 $ 3,033,566

Transaction revenue for airline travel reservations is recognized by Travel Network at the time of booking of the reservation, net of estimated future cancellations.

Travel Solutions generates distribution revenue for bookings made through our GDS (e.g., Air, and Lodging, Ground and Sea ("LGS")).

GDS services link and engage transactions between travel agents and travel suppliers.

Revenue is generated from contracts with the travel suppliers as each booking is made or transaction occurs and represents a stand-ready performance obligation where our systems perform the same service each day for the customer, based on the customer’s level of usage.

Distribution revenue associated with car rental, hotel transactions and other travel providers is recognized at the time the reservation is used by the customer.

Distribution revenue associated with airline travel reservations is recognized at the time of booking of the reservation, net of estimated future cancellations.

In the first and second quarters of 2020, the airline industry experienced a significantly higher number of airline travel reservation cancellations as a result of COVID-19 than expected as of December 31, 2019 and March 31, 2020.

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To address this change in estimate, we further increased our reserve for future cancellations to $ 60 million as of June 30, 2020 to account for the significant effect that COVID-19 has had on the travel industry and the resulting volume of airline travel cancellations and the impacts on the booking fee rate for higher international cancellations and lower international new bookings than previously experienced.

We may occasionally recognize revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in estimates for the transaction price, including any changes to our assessment of whether an estimate of variable consideration is constrained.

For the six months ended June 30, 2020, the impact on revenue recognized in the current period, from performance obligations partially or fully satisfied in the previous period, is immaterial.

We recognize revenue under long-term contracts that primarily includes variable consideration based on transactions processed.

A majority of our consolidated revenue is recognized as a stand-ready performance obligation with the amount recognized based on the invoiced amounts for services performed, known as right to invoice revenue recognition.

Certain of our contracts, primarily in the Airlines Solutions business, contain minimum transaction volumes, which in many instances are not considered substantive as the customer is expected to exceed the minimum in the contract.

Actual cancellations during the third quarter were fewer than expected as of the end of the second quarter and new bookings remained down significantly during the third quarter.

This combination of actual cancellation activity and fewer bookings resulted in a reduction in the cancellation reserve to $ 33 million as of September 30, 2020 .

Given the continued uncertainty caused by the COVID-19 pandemic, we expect variability in the amount of our cancellation reserve in future periods as estimates of cancellations may differ from historical and recent experience.

Approximately $ 18 million of revenue was recognized in the third quarter of 2020 resulting from less cancellation activity on bookings scheduled to depart during the third quarter than estimated as of June 30, 2020.

Travel Solutions also generates IT solutions revenue from its product offerings including reservation systems for full-cost and low-cost carriers, commercial and operations products, agency solutions and booking data.

Reservation system revenue is primarily generated based on the number of passengers boarded.

Normally, customers are charged a fixed, upfront solutions fee and a recurring usage-based fee for the use of the software as a stand-ready performance obligation.

In the context of both our reservation systems and our commercial and operations products, upfront solutions fees are recognized primarily on a straight-line basis over the relevant contract term, upon cut-over of the primary SaaS solution.

We may occasionally recognize revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in

estimates for the transaction price, including any changes to our assessment of whether an estimate of variable consideration is constrained.

For the nine months ended September 30, 2020, the impact on revenue recognized in the current period, from performance obligations partially or fully satisfied in the previous period, is immaterial.

We also directly license certain software to customers associated with our commercial and operations products in which the customer obtains control of a license.

Revenue from software license fees is recognized when the customer gains control of the software enabling them to directly use the software and obtain substantially all of the remaining benefits.

Fees for ongoing software maintenance are recognized ratably over the life of the contract.

Hospitality Solutions generates revenue from technology solutions provided to hotels primarily in a SaaS or hosted environment based on the number of central reservation system transactions.

Upfront solutions fees are recognized primarily on a straight-line basis over the relevant contract term, upon cut-over of the primary SaaS solution.

Customers are normally charged an upfront solutions fee and a recurring usage-based fee for the use of the software, which represents a stand-ready performance obligation.

Contracts with the same customer which are entered into at or around the same period are analyzed for revenue recognition purposes on a combined basis which can impact timing of revenue recognition.

Unearned performance obligations primarily consist of deferred revenue for fixed implementation fees and future product implementations, which are included in deferred revenue and other noncurrent liabilities in our consolidated balance sheet.

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In October 2019, we completed the acquisition of Radixx, a provider of retailing and customer service solutions to airlines in the low-cost carrier ("LCC") market, for $ 107 million, net of cash acquired and funded by cash on hand.

Radixx is managed as a part of our Airline Solutions segment.

The accounting related to intangible assets and the associated deferred taxes remains subject to finalization due to ongoing analysis as of June 30, 2020.

Radixx is managed as a part of our Travel Solutions segment.

During the third quarter of 2020, we recorded immaterial measurement period adjustments to deferred income taxes and goodwill and completed the purchase price allocation for the Radixx acquisition.

Restructuring Activities

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The COVID-19 pandemic has caused major shifts in the travel ecosystem resulting in the changing needs of our airline, hotel and agency customers.

During the three months ended June 30, 2020, we incurred $ 48 million in connection with these restructuring activities, of which $ 41 million is recorded within cost of revenue and $ 7 million is recorded within selling, general and administrative costs within our consolidated statement of operations.

During the six months ended June 30, 2020, we incurred $ 73 million in connection with these restructuring activities, of which $ 57 million is recorded within cost of revenue and $ 16 million is recorded within selling, general and administrative costs within our consolidated statement of operations.

As a result, we accelerated 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.

During the nine months ended September 30, 2020, we incurred $ 74 million in connection with these restructuring activities, of which $ 22 million is recorded within cost of revenue, $ 32 million is recorded within technology costs and $ 20 million is recorded within selling, general and administrative costs within our consolidated statement of operations.

Substantially all of these costs represent future cash expenditures for the payment of severance and related benefits costs.

This strategic realignment and related actions are expected to be substantially complete in the third quarter of 2020.

This strategic realignment and related actions are substantially complete.

We do not expect additional restructuring charges associated with these activities to be significant.

Subsequent Events for further information on the organizational changes as a result of these restructuring activities.

The following table summarizes the accrued liability, as recorded within accrued compensation and related benefits within our consolidated balance sheet, related to these restructuring activities (in thousands):

Six Months Ended June 30, 2020

Nine Months Ended

September 30, 2020

Balance as of January 1, 2020 $ —

1 unchanged sentence

Cash Payments ( 33,433 )

Balance as of June 30, 2020 $ 59,541

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 valuation allowance recorded on tax losses generated in the current 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.

Balance as of September 30, 2020 $ 40,501

Our effective tax rates for the nine months ended September 30, 2020 and 2019 were 5 % and 17 %, respectively.

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

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

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and in certain foreign jurisdictions to realize the full benefits of its deferred tax assets.

On the basis of this evaluation, as of June 30, 2020, a valuation allowance of $ 94 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

On the basis of this evaluation, as of September 30, 2020, a valuation allowance of $ 139 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased.

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When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate.

Our net unrecognized tax benefits, excluding interest and penalties, included in our consolidated balance sheets, were $ 65 million as of June 30, 2020 and December 31, 2019

Our net unrecognized tax benefits, excluding interest and penalties, included in our consolidated balance sheets, were $ 67 million and $ 65 million as of September 30, 2020 and December 31, 2019, respectively.

Tax Receivable Agreement

stockholders and equity award holders, respectively, immediately prior to the closing of our initial public offering (collectively, the “Pre-IPO Existing Stockholders”).

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.

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

Credit Losses

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Our allowance for credit losses relates to all financial assets, primarily trade receivables due in less than one year recorded in Accounts Receivable, net on our consolidated balance sheets.

Our allowance for credit losses for the six months ended June 30, 2020 for our portfolio segment is summarized as follows (in thousands):

Six Months Ended June 30, 2020

Our allowance for credit losses for the nine months ended September 30, 2020 for our portfolio segment is summarized as follows (in thousands):

Nine Months Ended

September 30, 2020

Balance at December 31, 2019 $ 57,730

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Write-offs ( 14,173 )

Balance at June 30, 2020 $ 102,863

Our provision for expected credit losses totaled $ 11 million and $ 48 million for the three and six months ended June 30, 2020, respectively.

For the six months ended June 30, 2020, we made a decision to fully reserve for certain aged balances related to particular customers due to heightened uncertainty regarding collectability, including uncertainty related to bankruptcy

filings by several of our customers during the second quarter of 2020.

Balance at September 30, 2020 $ 113,030

Our provision for expected credit losses totaled $ 11 million and $ 58 million for the three and nine months ended September 30, 2020, respectively.

For the nine months ended September 30, 2020, we made a decision to fully reserve for certain aged balances related to particular customers due to heightened uncertainty regarding collectability, including uncertainty related to bankruptcy filings by several of our customers during the nine months ended September 30, 2020.

Additionally, the impact of the COVID-19 pandemic on the global economy and other general increases in aging balances has affected our current estimate of expected credit losses since year-end.

Macro-economic factors, including the economic downtown and lack of liquidity in the capital markets resulting from the COVID-19 pandemic, can have a significant effect on additions to the allowance as the pandemic may result in the restructuring or bankruptcy of additional customers.

Macro-economic factors, including the economic downtown, lack of liquidity in the capital markets resulting from the COVID-19 pandemic and lack of additional government funding, can have a significant effect on additions to the allowance as the pandemic may result in the restructuring or bankruptcy of additional customers.

Given the uncertainties surrounding the duration and effects of COVID-19, we cannot provide assurance that the assumptions used in our estimates will be accurate and actual write-offs may vary from our estimates.

As of June 30, 2020 and December 31, 2019, our outstanding debt included in our consolidated balance sheets totaled $ 4,686 million and $ 3,343 million, respectively, which are net of debt issuance costs of $ 38 million and $ 15 million, respectively, and unamortized discounts of $ 93 million and $ 6 million, respectively.

See "—Exchangeable Notes" below regarding the increase in unamortized discounts as of June 30, 2020.

The following table sets forth the face values of our outstanding debt as of June 30, 2020 and December 31, 2019 (in thousands):

Rate Maturity June 30, 2020 December 31, 2019

As of September 30, 2020 and December 31, 2019, our outstanding debt included in our consolidated balance sheets totaled $ 4,673 million and $ 3,343 million, respectively, which are net of debt issuance costs of $ 48 million and $ 15 million, respectively, and unamortized discounts of $ 89 million and $ 6 million, respectively.

See "—Secured Notes" and "—Exchangeable Notes" below regarding the increase in unamortized discounts as of September 30, 2020.

The following table sets forth the face values of our outstanding debt as of September 30, 2020 and December 31, 2019 (in thousands):

Rate Maturity September 30, 2020 December 31, 2019

Senior secured credit facilities:

Term Loan A L + 2.25 %

July 2022 $ 456,000 $ 484,500

Term Loan A (1)

August 2023 $ 133,995 $ 484,500

Term Loan B L + 2.00 %

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Revolver, $ 400 million (2)

July 2022 375,000 —

August 2023 375,000 —

5.375 % senior secured notes due 2023 (3)

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9.25 % April 2025 775,000 —

7.375 % senior secured notes due 2025

7.375 % September 2025 850,000 —

4.00 % senior exchangeable notes due 2025

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Face value of long-term debt outstanding $ 4,775,761 $ 3,282,195

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, respectively, which reduced our overall credit capacity under the Revolver.

______________________

(1) Pursuant to the August 27, 2020 refinancing, the interest rate on Term Loan A was increased from L+ 2.50 % to L+ 2.75 % and the maturity was extended from July 2022 to August 2023.

Subject to certain "springing" maturity conditions, the maturity may extend to February 2024 at the latest.

(2) Pursuant to the August 27, 2020 refinancing, the interest rate on the Revolver was increased from L+ 2.50 % to L+ 2.75 % and the maturity was extended from July 2022 to August 2023.

Subject to certain "springing" maturity conditions, the maturity may extend to February 2024 at the latest.

(3) Extinguished on August 27, 2020 using proceeds from the 7.375 % senior secured notes due 2025.

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

We had outstanding letters of credit totaling $ 11 million and $ 12 million as of September 30, 2020 and December 31, 2019, respectively, which reduced our overall credit capacity under the Revolver.

Senior Secured Credit Facilities

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The 2017 Refinancing included a $ 400 million revolving credit facility ("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.

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We incurred no additional indebtedness as a result of this transaction.

On August 27, 2020, Sabre GLBL entered into a Third Revolving Facility Refinancing Amendment to the Amended and Restated Credit Agreement (the "Third Revolving Refinancing Amendment") and the First Term A Loan Extension Amendment to the Amended and Restated Credit Agreement (the "Term A Loan Extension Amendment" and, together with the Third Revolving Refinancing Amendment, the "2020 Refinancing"), which extended the maturity of the Revolver from July 1, 2022 to August 16, 2023 at the earliest and February 22, 2024 at the latest, depending on certain "springing" maturity conditions as described in the Third Revolving Refinancing Amendment and extended the maturity of the Term Loan A from July 1, 2022 to August 16, 2023 at the earliest and February 22, 2024 at the latest, depending on certain "springing" maturity conditions as described in the Term A Loan Extension Amendment.

In the event that, as of August 16, 2023, the maturity date of the 5.25 % senior secured notes due 2023 (the "November 2023 Notes") has not been extended or refinanced to a date after August 20, 2024, the extension is subject

to an earlier "springing" maturity date of August 16, 2023.

In the event that, as of November 23, 2023, the maturity date of the Term Loan B has not been extended or refinanced to a date after August 20, 2024, the extension is subject to an earlier "springing" maturity date of November 23, 2023.

In addition to extending the maturity date of the Revolver and Term A Loan, the 2020 Refinancing also provides that, during any covenant suspension resulting from a "Material Travel Event Disruption" (as defined in the Amended and Restated Credit Agreement and discussed further below), including during the current covenant suspension period, we must maintain liquidity of at least $ 450 million on a monthly basis.

In addition, during this covenant suspension, the 2020 Refinancing limits certain payments to equity holders, certain investments, certain prepayments of unsecured debt and the ability of certain subsidiaries to incur additional debt.

The interest rate spreads for the Revolver and Term Loan A were increased by 0.25 %, during covenant suspension, in connection with the 2020 Refinancing.

The maturity date of Term Loan B remains February 22, 2024.

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.

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The number of “domestic revenue passenger enplanements” is determined by reference to the monthly “Air Traffic Statistics,” which terms are published by the Bureau of Transportation Statistics.

We have determined that a Material Travel Event Disruption occurred in the first and second quarter of 2020.

Pursuant to the terms of the Amended and Restated Credit Agreement, the Total Net Leverage Ratio covenant has been suspended for at least the second and third quarters of 2020.

As of June 30, 2020, we are in compliance with all covenants not suspended under the terms of the Amended and Restated Credit Agreement.

We have determined that a Material Travel Event Disruption occurred in the first, second and third quarters of 2020.

Pursuant to the terms of the Amended and Restated Credit Agreement, the Total Net Leverage Ratio covenant has been suspended for at least the third and fourth quarters of 2020.

As of September 30, 2020, we are in compliance with all covenants not suspended under the terms of the Amended and Restated Credit Agreement and with the additional covenants of the 2020 Refinancing.

Secured Notes

On April 17, 2020, Sabre GLBL entered into a new debt agreement consisting of $ 775 million aggregate principal amount of 9.250 % senior secured notes due 2025 (the “Secured Notes”).

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

The Secured Notes bear interest at a rate of 9.250 % per annum and interest payments are due semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2020.

The Secured Notes mature on April 15, 2025.

The net proceeds received from the sale of the Secured Notes of $ 763 million, net of underwriting fees and commissions, are being used for general corporate purposes.

On August 27, 2020, Sabre GLBL entered into a new debt agreement consisting of $ 850 million aggregate principal amount of 7.375 % senior secured notes due 2025 (the “September 2025 Notes”).

The September 2025 Notes are jointly and severally, irrevocably and unconditionally guaranteed by Sabre Holdings and all of Sabre GLBL’s restricted subsidiaries that guarantee Sabre GLBL’s credit facility.

The September 2025 Notes bear interest at a rate of 7.375 % per annum and interest payments are due semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2021.

The September 2025 Notes mature on September 1, 2025.

The net proceeds received from the sale of the September 2025 Notes, net of underwriting fees and commissions, plus cash on hand, was used to:

(1) repay approximately $ 319 million principal amount of debt under the Term Loan A;

(2) redeem all of our outstanding 5.375 % senior secured notes due April 2023;

and (3) repay approximately $ 3 million principal amount of debt under the Term Loan B.

We recognized a loss on extinguishment of debt of $ 10 million during the nine months ended September 30, 2020 in connection with these transactions which consisted of a redemption premium of $ 7 million and the write-off of unamortized debt issuance costs of $ 3 million.

On April 17, 2020, Sabre GLBL entered into a new debt agreement consisting of $ 775 million aggregate principal amount of 9.250 % senior secured notes due 2025 (the “April 2025 Notes”).

The April 2025 Notes are jointly and severally, irrevocably and unconditionally guaranteed by Sabre Holdings and all of Sabre GLBL’s restricted subsidiaries that guarantee Sabre GLBL’s credit facility.

The April 2025 Notes bear interest at a rate of 9.250 % per annum and interest payments are due semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2020.

The April 2025 Notes mature on April 15, 2025.

The net proceeds received from the sale of the April 2025 Notes of $ 763 million, net of underwriting fees and commissions, are being used for general corporate purposes.

Exchangeable Notes

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Under the terms of indenture, the notes are exchangeable into common stock of Sabre Corporation (referred to as "our common stock" herein) at the following times or circumstances:

• during any calendar quarter commencing after the calendar quarter ended June 30, 2020, if the last reported sale price per share of our common stock exceeds 130 % of the exchange price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

• during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the "Measurement Period") if the trading price per $1,000 principal amount of Exchangeable Notes, as determined following a request by their holder in accordance with the procedures in the indenture, for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of our common stock on such trading day and the exchange rate on such trading day;

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With certain exceptions, upon a Change of Control or other Fundamental Change (both as defined in the indenture governing the Exchangeable Notes), the holders of the Exchangeable Notes may require us to repurchase all or part of the principal amount of the Exchangeable Notes at a repurchase price equal to 100 % of the principal amount of the Exchangeable Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date.

As of June 30, 2020 , none of the conditions allowing holders of the Exchangeable Notes to exchange have been met.

Although not convertible as of June 30, 2020, the value of the Exchangeable Notes, if converted on June 30, 2020, exceeds the outstanding principal amount by $ 8 million for approximately 44 million underlying shares.

As of September 30, 2020 , none of the conditions allowing holders of the Exchangeable Notes to exchange have been met.

As of September 30, 2020, the value of the Exchangeable Notes does not exceed the outstanding principal amount.

The Exchangeable Notes are convertible at their holder’s election into shares of our common stock based on an initial conversion rate of 126.9499 shares of common stock per $1,000 principal amount of the Exchangeable Notes, which is equivalent to an initial conversion price of approximately $ 7.88 per share.

1 unchanged sentence

Upon conversion, Sabre GLBL will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of common stock, at our election.

If a “Make-Whole Fundamental Change” (as defined in the Exchangeable Notes Indenture) occurs with respect to any Exchangeable Note and the exchange date for the exchange of such Exchangeable Note occurs during the related “Make-Whole Fundamental Change Exchange Period” (as defined in the Exchangeable Notes Indenture), then, subject to the provisions set forth in the Exchangeable Notes Indenture, the exchange rate applicable to such exchange will be increased by a number of shares set forth in the table contained in the Exchangeable Notes

Indenture, based on a function of the time since origination and our stock price on the date of the occurrence of such Make-Whole Fundamental Change.

The net proceeds received from the sale of the Exchangeable Notes of $ 336 million, net of underwriting fees and commissions, are being used for general corporate purposes.

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The difference between the face value of the Exchangeable Notes and the long-term debt component is accounted for as a debt discount, which is amortized, along with debt issuance costs, to interest expense over the term of the Exchangeable Notes ending April 15, 2025 using an effective interest rate of approximately 12 %.

The following table sets forth the carrying value of the Exchangeable Notes as of June 30, 2020 (in thousands):

June 30, 2020

The following table sets forth the carrying value of the Exchangeable Notes as of September 30, 2020 (in thousands):

September 30, 2020

Liability component:

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Net Carrying Value $ 67,615

(1) Excludes net unamortized debt issuance costs of $ 9 million as of June 30, 2020.

The following table sets forth interest expense recognized related to the Exchangeable Notes for the three and six months ended June 30, 2020 (in thousands):

Three and Six Months Ended June 30,

______________________

1) Excludes net unamortized debt issuance costs of $ 8 million as of September 30, 2020.

The following table sets forth interest expense recognized related to the Exchangeable Notes for the three and nine months ended September 30, 2020 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

Contractual interest expense $ 3,450 $ 6,248

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Conversely, when the dollar weakens, the increase in the present value of future foreign currency expense is offset by gains in the fair value of the forward contracts.

Due to the uncertainty driven by the COVID-19 pandemic on our foreign currency exposures, we have paused entering into new cash flow hedges of forecasted foreign currency cash flows until we have more clarity regarding the recovery trajectory and its impacts on net exposures.

We enter into interest rate swap agreements to manage interest rate risk exposure.

The interest rate swap agreements modify our exposure to interest rate risk by converting floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense and net earnings.

These agreements involve the receipt of floating rate amounts in

exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount.

These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portions and ineffective portions of the gain or loss on the derivative instruments, and the hedge components excluded from the assessment of effectiveness, are reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

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We have designated these instruments as cash flow hedges.

No hedging ineffectiveness was recorded in earnings relating to the forward contracts during the three and six months ended June 30, 2020 and 2019.

As of June 30, 2020, we estimate that $ 3 million in losses will be reclassified from other comprehensive (loss) income to earnings over the next 12 months.

As of June 30, 2020 and December 31, 2019, we had the following unsettled purchased foreign currency forward contracts that were entered into to hedge our operational exposure to foreign currency movements (in thousands, except for average contract rates):

Outstanding Notional Amounts as of June 30, 2020

No hedging ineffectiveness was recorded in earnings relating to the forward contracts during the three and

nine months ended September 30, 2020 and 2019.

As of September 30, 2020, no material losses are expected to be reclassified from other comprehensive (loss) income to earnings over the next 12 months.

As of September 30, 2020 and December 31, 2019, we had the following unsettled purchased foreign currency forward contracts that were entered into to hedge our operational exposure to foreign currency movements (in thousands, except for average contract rates):

Outstanding Notional Amounts as of September 30, 2020

Buy Currency Sell Currency Foreign Amount USD Amount Average

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Polish Zloty US Dollar 54,000 14,105 0.2612

Indian Rupee US Dollar 1,650,000 22,597 0.0136

Singapore Dollar US Dollar 12,000 8,899 0.7416

Indian Rupee US Dollar 550,000 7,475 0.0136

British Pound Sterling US Dollar 3,900 5,118 1.3123

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Swedish Krona US Dollar 38,100 4,106 0.1075

Interest Rate Swap Contracts — Interest rate swaps outstanding during the six months ended June 30, 2020 and 2019 are as follows:

Interest Rate Swap Contracts — Interest rate swaps outstanding during the nine months ended September 30, 2020 and 2019 are as follows:

Notional Amount Interest Rate

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We have designated these swaps as cash flow hedges.

The estimated fair values of our derivatives designated as hedging instruments as of June 30, 2020 and December 31, 2019 are as follows (in thousands):

The estimated fair values of our derivatives designated as hedging instruments as of September 30, 2020 and December 31, 2019 are as follows (in thousands):

Derivative Assets (Liabilities)

Fair Value as of

Derivatives Designated as Hedging Instruments Consolidated Balance Sheet Location June 30, 2020 December 31, 2019

Derivatives Designated as Hedging Instruments Consolidated Balance Sheet Location September 30, 2020 December 31, 2019

Foreign exchange contracts Prepaid expenses and other $ — $ 1,953

Foreign exchange contracts Other accrued liabilities ( 258 ) —

Foreign exchange contracts Prepaid expenses and other current assets — 1,953

Interest rate swaps Other accrued liabilities ( 18,428 ) ( 7,020 )

Interest rate swaps Other noncurrent liabilities ( 3,368 ) ( 7,918 )

$ ( 30,426 ) $ ( 12,985 )

The effects of derivative instruments, net of taxes, on OCI for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

Total $ ( 22,054 ) $ ( 12,985 )

The effects of derivative instruments, net of taxes, on OCI for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

Amount of Gain (Loss) Recognized in OCI on Derivative,

Effective Portion

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

Three Months Ended September 30, Nine Months Ended September 30,

Derivatives in Cash Flow Hedging Relationships 2020 2019 2020 2019

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Amount of Loss (Gain) Reclassified from Accumulated OCI into Income, Effective Portion

Derivatives in Cash Flow Hedging Relationships Income Statement Location Three Months Ended June 30, Six Months Ended June 30,

Derivatives in Cash Flow Hedging Relationships Income Statement Location Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Interest Rate Swaps— The fair value of our interest rate swaps is estimated using a combined income and market-based valuation methodology based upon Level 2 inputs, including credit ratings and forward interest rate yield curves obtained from independent pricing services reflecting broker market quotes

The following tables present our (liabilities) assets that are required to be measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

The following tables present our (liabilities) assets that are required to be measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):

Fair Value at Reporting Date Using

June 30, 2020 Level 1 Level 2 Level 3

September 30, 2020 Level 1 Level 2 Level 3

Derivatives (1)

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Total $ ( 12,985 ) $ — $ ( 12,985 ) $ —

______________________

(1) See Note 8.

Derivatives for further detail.

There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three and six months ended June 30, 2020.

There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three and nine months ended September 30, 2020.

Other Financial Instruments

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The fair values of our senior exchangeable notes due 2025, senior secured notes due 2025, senior secured notes due 2023 and term loans under our Amended and Restated Credit Agreement are determined based on quoted market prices for a similar liability when traded as an asset in an active market, a Level 2 input.

The following table presents the fair value and carrying value of our senior notes and borrowings under our senior secured credit facilities as of June 30, 2020 and December 31, 2019 (in thousands):

The following table presents the fair value and carrying value of our senior notes and borrowings under our senior secured credit facilities as of September 30, 2020 and December 31, 2019 (in thousands):

Fair Value at Carrying Value at (1)

Financial Instrument June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019

Financial Instrument September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

Term Loan A $ 128,970 $ 485,106 $ 133,290 $ 483,317

8 unchanged sentences

854,294 — 775,000 —

7.375 % senior secured notes due 2025

856,783 — 850,000 —

4.00 % senior exchangeable notes due 2025

405,824 — 260,918 —

______________________

(1) Excludes net unamortized debt issuance costs.

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Our interim impairment assessment as of March 31, 2020, determined that our goodwill was not impaired.

We conducted an update to this interim quantitative impairment assessment as of June 30, 2020, and have determined that our goodwill is no t impaired for any business unit as of June 30, 2020.

As a result of our strategic realignment, our historical Travel Network and Airline Solutions business segments have been combined into a new business segment, Travel Solutions.

In connection with this reorganization, the historical Travel Network and Airline Solutions reporting units and their related goodwill were combined into a single Travel Solutions reporting unit,

thereby requiring no reallocation of goodwill based on fair values.

There was no change to our historical Hospitality Solutions reporting unit.

We updated our goodwill assessment on a qualitative basis, reflecting both pre- and post-organization, for all reporting units as of June 30, 2020 and September 30, 2020, and determined that our goodwill was no t impaired for any reporting unit at either date.

Accumulated Other Comprehensive Loss

As of June 30, 2020 and December 31, 2019, the components of accumulated other comprehensive loss, net of related deferred income taxes, are as follows (in thousands):

June 30, 2020 December 31, 2019

As of September 30, 2020 and December 31, 2019, the components of accumulated other comprehensive loss, net of related deferred income taxes, are as follows (in thousands):

September 30, 2020 December 31, 2019

Defined benefit pension and other post-retirement benefit plans $ ( 136,690 ) $ ( 143,389 )

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Unrealized loss on foreign currency forward contracts and interest rate swaps ( 17,894 ) ( 10,206 )

( 24,618 ) ( 10,206 )

Total accumulated other comprehensive loss, net of tax $ ( 146,103 ) $ ( 149,306 )

The amortization of actuarial losses and periodic service credits associated with our retirement-related benefit plans is primarily included in Other, net in the consolidated statements of operations.

During the three months ended September 30, 2020, a settlement occurred within our defined benefit pension plan which resulted in a loss of $ 14 million recorded to Other, net.

Derivatives, for information on the income statement line items affected as the result of reclassification adjustments associated with derivatives.

Stock and Stockholders' Equity

Preferred Stock

On August 24, 2020, we completed an offering of 3,340,000 shares of our 6.50 % Series A Mandatory Convertible Preferred Stock (the "Preferred Stock"), which generated net proceeds of approximately $ 323 million for use as general corporate purposes.

The Preferred Stock accumulates cumulative dividends at a rate per annum equal to 6.50 % of the liquidation preference of $ 100 per share (equivalent to $ 6.50 annually per share) payable in cash or, subject to certain limitations, by delivery of shares of our common stock or any combination of cash and shares of our common stock, at our election;

provided, however, that any undeclared and unpaid dividends will continue to accumulate.

Dividends are payable when, as and if declared by our Board of Directors, out of funds legally available for their payment to the extent paid in cash, quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, beginning on December 1, 2020 and ending on, and including, September 1, 2023.

Declared dividends on the Preferred Stock will be payable, at our election, in cash, shares of our common stock or a combination of cash and shares of our common stock.

Subject to limited exceptions, no dividends may be declared or paid on shares of our common stock, unless all accumulated dividends have been paid or set aside for payment on all outstanding shares of our Preferred Stock for all past completed dividend periods.

In the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of our Preferred Stock a liquidation preference equal to $ 100 per share plus accumulated and unpaid dividends.

We recorded $ 2 million of accrued preferred stock dividends in our consolidated results of operations for the three and nine months ended September 30, 2020.

In October 2020, the Board of Directors declared a dividend of $ 1.7514 per share on Preferred Stock payable on December 1, 2020 to holders of record of the Preferred Stock on November 15, 2020.

Unless earlier converted, each outstanding share of Preferred Stock will automatically convert, on the mandatory conversion date, which is expected to be September 1, 2023 into shares of our common stock at a rate between 11.9048 and 14.2857 , subject to customary anti-dilution adjustments.

The number of shares of our common stock issuable upon conversion will be determined based on the average volume-weighted average price per share of our common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately before September 1, 2023.

The number of shares issued at conversion based on the unadjusted conversion rates will be between 40 million and 48 million shares.

Holders of the Preferred Stock have the right to convert all or any portion of their shares at any time until the close of business on the mandatory conversion date.

Early conversions that are not in connection with a “Make-Whole Fundamental Change” (as defined in the Certificate of Designations governing the Preferred Stock) will be settled at the minimum conversion rate of 11.9048 .

If a Make-Whole Fundamental Change occurs, holders of the Preferred Stock will, in certain circumstances, be entitled to convert their shares at an increased conversion rate for a specified period of time and receive an amount to compensate them for certain unpaid accumulated dividends and any remaining future scheduled dividend payments.

The Preferred Stock will not be redeemable at our election before the mandatory conversion date.

The holders of the Preferred Stock will not have any voting rights, with limited exceptions.

In the event that Preferred Stock dividends have not been declared and paid in an aggregate amount corresponding to six or more dividend periods, whether or not consecutive, the

holders of the Preferred Stock will have the right to elect two new directors until all accumulated and unpaid Preferred Stock dividends have been paid in full, at which time that right will terminate.

On August 24, 2020, we completed an offering of 41,071,429 shares of our common stock which generated net proceeds of approximately $ 275 million for use as general corporate purposes.

Share Repurchase Program

In February 2017, we announced the approval of a multi-year share repurchase program (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 nine months ended September 30, 2020, we did no t repurchase any shares pursuant to the Share Repurchase Program.

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

Earnings Per Share

The following table reconciles the numerators and denominators used in the computations of basic and diluted earnings per share from continuing operations (in thousands, except per share data):

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(Loss) income from continuing operations $ ( 309,560 ) $ 65,180 $ ( 962,861 ) $ 152,488

Net (loss) income attributable to non-controlling interests ( 71 ) 1,606 712 2,518

Net income attributable to non-controlling interests 125 771 837 3,289

Preferred stock dividends 2,231 — 2,231 —

Net (loss) income from continuing operations available to common stockholders, basic and diluted $ ( 311,916 ) $ 64,409 $ ( 965,929 ) $ 149,199

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Diluted $ ( 1.07 ) $ 0.23 $ ( 3.44 ) $ 0.54

Basic earnings per share are based on the weighted-average number of common shares outstanding during each period.

Diluted earnings per share are based on the weighted-average number of common shares outstanding plus the effect of all dilutive common stock equivalents during each period.

The diluted weighted-average common shares outstanding calculation excludes 2 million of dilutive stock options and restricted stock awards for the six months ended June 30, 2020 as their effect would be anti-dilutive given the net loss incurred in the period.

The calculation of diluted weighted-average shares excludes the impact of 8 million and 2 million of anti-dilutive common stock equivalents for each of the three and six months ended June 30, 2020, respectively, and 2 million and 1 million of anti-dilutive common stock equivalents for each of the three and six months ended June 30, 2019, respectively.

Basic earnings per share is computed by dividing net income from continuing operations available to common stockholders by the weighted-average number of common shares outstanding during each period.

Diluted earnings per share is computed by dividing net income from continuing operations available to common stockholders by the weighted-average number of common shares outstanding plus the effect of all dilutive common stock equivalents during each period.

The diluted weighted-average common shares outstanding calculation excludes 2 million of dilutive stock options and restricted stock awards for the nine months ended September 30, 2020 as their effect would be anti-dilutive given the net loss incurred in the period.

The calculation of diluted weighted-average shares excludes the impact of 6 million and 3 million of anti-dilutive common stock equivalents for each of the three and nine months ended September 30, 2020, respectively, and 3 million of anti-dilutive common stock equivalents for each of the three and nine months ended September 30, 2019.

As we expect to settle the principal amount of the outstanding Exchangeable Notes in shares of our common stock, we have used the if-converted method for calculating any potential dilutive effect of these notes on our diluted net income per share.

Under the if-converted method, the Exchangeable Notes are assumed to be converted at the beginning of the period and the resulting common shares are included in the denominator of the diluted earnings per share calculation for the entire period being presented and interest expense, net of tax, recorded in connection with the Exchangeable Notes is added back to the numerator, only in the periods in which such effect is dilutive.

The approximately 44 million resulting common shares related to the Exchangeable Notes are not included in the dilutive weighted-average common shares outstanding calculation for the three and six months ended June 30, 2020, as their effect would be anti-dilutive given the net loss incurred in the period.

The approximately 44 million resulting common shares related to the Exchangeable Notes are not included in the dilutive weighted-average common shares outstanding calculation for the three and nine months ended September 30, 2020, respectively, as their effect would be anti-dilutive given the net loss incurred in the period.

Likewise, the potential dilutive effect of our Preferred Stock outstanding during the period was calculated using the if-converted method assuming the conversion as of the earliest period reported or at the date of issuance, if later.

The approximately 40 million resulting common shares related to the Preferred Stock are not included in the dilutive weighted-average common shares outstanding calculation for the three and nine months ended September 30, 2020, respectively, as their effect would be anti-dilutive given the net loss incurred in the period.

We lease certain facilities under long-term operating leases.

Operating lease assets are included in operating lease right-of-use (“ROU”) assets within other noncurrent assets and operating lease liabilities are included in other current liabilities and other noncurrent liabilities in our consolidated balance sheets.

During the six months ended June 30, 2020, an operating lease commenced with a lease term of 10 years which is reflected in the information below.

During the nine months ended September 30, 2020, an operating lease commenced with a lease term of 10 years which is reflected in the information below.

Our finance leases are not material to our consolidated financial statements and have been omitted from the information below.

The following table presents supplemental cash flow information related to operating leases (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental Cash Flow Information

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The following table presents supplemental balance sheet information related to operating leases (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Operating Leases

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others include options to terminate the agreement within three years .

Future minimum lease payments under non-cancellable operating leases as of June 30, 2020 are as follows (in thousands):

Future minimum lease payments under non-cancellable operating leases as of September 30, 2020 are as follows (in thousands):

Year Ending December 31, Operating Leases

2020 $ 11,519

Thereafter 31,651

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As a result of the Second Circuit’s opinion, we believe that the claims associated with this case are not probable;

therefore, in the third quarter of 2019, we reversed our previously accrued loss of $ 32 million and do no t have any losses accrued for this matter as of June 30, 2020.

therefore, in the third quarter of 2019, we reversed our previously accrued loss of $ 32 million and do no t have any losses accrued for this matter as of September 30, 2020.

We have and will incur significant fees, costs and expenses for as long as the litigation is ongoing.

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Depending on the outcome of the litigation, any of these consequences could have a material adverse effect on our business, financial condition and results of operations.

Department of Justice Lawsuit on and Competition and Markets Authority Review of the Farelogix Acquisition

On August 20, 2019, the DOJ filed a complaint in federal court in the District of Delaware, seeking a permanent injunction to prevent Sabre from acquiring Farelogix, Inc., 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 9, 2020, the CMA blocked the acquisition following its Phase 2 investigation.

We have appealed the CMA's decision to the U.K.

Competition Appeal Tribunal.

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.

Following the termination of the acquisition agreement, the DOJ filed a motion with the U.S.

Court of Appeals for the Third Circuit seeking to vacate the trial court's decision as moot, which the Court of Appeals granted.

European Commission’s Directorate-General for Competition ("EC") Investigation

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We are fully cooperating with the DOJ investigation and are unable to make any prediction regarding its outcome.

The DOJ is also investigating other companies that own GDSs and has sent CIDs to other companies in the travel industry.

The DOJ is also investigating other companies that own GDSs and has sent CIDs

to other companies in the travel industry.

Based on its findings in the investigation, the DOJ may (i) close the file, (ii) seek a consent decree to remedy issues it believes violate the antitrust laws, or (iii) file suit against us for violating the antitrust laws, seeking injunctive relief.

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The DIT also assessed taxes on a similar basis for assessment years ending March 2006 through March 2016 and appeals for assessment years ending March 2006 through 2016 are pending before the ITAT.

If the DIT were to fully prevail on every claim against us, including SAPPL, we could be subject to taxes, interest and penalties of approximately $ 43 million as of June 30, 2020.

If the DIT were to fully prevail on every claim against us, including SAPPL, we could be subject to taxes, interest and penalties of approximately $ 44 million as of September 30, 2020.

We intend to continue to aggressively defend against each of the foregoing claims.

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SynXis Central Reservation System

As previously disclosed, we became aware of an incident involving unauthorized access to payment information contained in a subset of hotel reservations processed through the Sabre Hospitality Solutions SynXis Central Reservation System (the “HS

Central Reservation System”).

Our investigation was supported by third party experts, including a leading cybersecurity firm.

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The unauthorized party was also able, in some cases, to access certain information such as guest name(s), email, phone number, address, and other information if provided to the HS Central Reservation System.

Information such as Social Security, passport, or driver’s license number was not accessed.

Information such as Social Security, passport, or driver’s license number was

not accessed.

The investigation did not uncover forensic evidence that the unauthorized party removed any information from the system, but it is a possibility.

We took successful measures to ensure this unauthorized access to the HS Central Reservation System was stopped and is no longer possible.

There is no indication that any of our systems beyond the HS Central Reservation System, such as Sabre’s Airline Solutions and Travel Network platforms, were affected or accessed by the unauthorized party.

There is no indication that any of our systems beyond the HS Central Reservation System, such as Sabre’s Travel Solutions platforms, were affected or accessed by the unauthorized party.

We notified law enforcement and the payment card brands and engaged a payment card industry data ("PCI") forensic investigator to investigate this incident at the payment card brands' request.

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Our most significant VAT receivable is in Greece.

As of June 30, 2020, we have approximately $ 22 million in VAT receivables for which refund claims have been filed with the Greek government.

As of September 30, 2020, we have approximately $ 23 million in VAT receivables for which refund claims have been filed with the Greek government.

Although we have paid these amounts and believe we are entitled to a refund, the Greek tax authorities have challenged our position.

In the second quarter of 2020, we received notice that the tax court has accepted our arguments to dismiss certain claims by the Greek tax authorities;

however, this ruling may be subject to appeal.

however, this ruling has been appealed.

In Greece, as in other jurisdictions, we intend to vigorously defend our positions against any claims that are not insignificant, including through litigation when necessary.

As of June 30, 2020, we do not believe that an adverse outcome is probable with respect to the claims of the Greek tax authorities or any other jurisdiction;

As of September 30, 2020, we do not believe that an adverse outcome is probable with respect to the claims of the Greek tax authorities or any other jurisdiction;

as a result, we have not accrued any material amounts for exposure related to such contingencies or adverse decisions.

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the manner in which our operations are managed;

the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), to evaluate segment performance;

the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker, to evaluate segment performance;

the availability of separate financial information;

and overall materiality considerations.

Our CODM utilizes Adjusted Gross Profit, Adjusted Operating (Loss) Income and Adjusted EBITDA as the measures of profitability to evaluate performance of our segments and allocate resources.

Corporate includes a technology organization that provides development and support activities to our segments.

The majority of costs associated with our technology organization are allocated to the segments primarily based on the segments' usage of resources.

Benefit expenses, facility costs and depreciation expense on the corporate headquarters building are allocated to the segments based on headcount.

corporate costs include certain shared expenses such as accounting, finance, human resources, legal, corporate systems, amortization of acquired intangible assets, impairment and related charges, stock-based compensation, restructuring charges, legal reserves and other items not identifiable with one of our segments.

We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices.

The majority of the intersegment revenues and cost of revenues are fees charged by Travel Network to Hospitality Solutions for airline trips booked through our GDS.

Our CODM does not review total assets by segment as operating evaluations and resource allocation decisions are not made on the basis of total assets by segment.

The performance of our segments is evaluated primarily on Adjusted Gross Profit, Adjusted Operating (Loss) Income and Adjusted EBITDA which are not recognized terms under GAAP.

Our uses of Adjusted Gross Profit, Adjusted Operating (Loss) Income and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

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 compensation and stock-based compensation included in cost of revenue.

As discussed in Note 1.

General Information , we now operate our business and present our results through two business segments effective the third quarter of 2020 (i) Travel Solutions, our global travel solutions for travel suppliers and travel buyers, including a broad portfolio of software technology products and solutions for airlines, and (ii) Hospitality Solutions, an extensive suite of software solutions for hoteliers.

All revenue and expenses previously assigned to the Travel Network and Airline Solutions business segments have been consolidated into a unified revenue and expense structure which aligns with information that our Chief Operating Decision Maker ("CODM") utilizes beginning in the third quarter of 2020 to evaluate segment performance and allocate resources.

These changes did not impact the historical Hospitality Solutions reporting segment's revenue and expenses.

Our CODM utilizes Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income and Adjusted EBITDA as the measures of profitability to evaluate performance of our segments and allocate resources which are not recognized terms under GAAP.

Our uses of Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

We define Adjusted Gross Profit (Loss) as operating (loss) income adjusted for selling, general and administrative expenses, technology costs and the cost of revenue portion of depreciation and amortization, restructuring and other costs, amortization of upfront incentive compensation and stock-based compensation.

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

We define Adjusted EBITDA as (loss) income from continuing operations adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, acquisition-related amortization, amortization of upfront incentive consideration, interest expense, net, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs, net, stock-based compensation and provision for income taxes.

Segment information for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):

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

As a result of our strategic realignment, we have separated our technology costs from cost of revenue and moved certain expenses previously classified as cost of revenue to selling, general and administrative to provide increased visibility to our technology costs for analytical and decision-making purposes and to align costs with the current leadership and operational organizational structure.

While there is no impact to Adjusted EBITDA as a result of these changes, our Adjusted Gross Profit (Loss) is more favorable than previously reported as it excludes costs that were previously classified as cost of revenue.

Technology costs are evaluated separately from Adjusted Gross Profit (Loss) by our CODM and excluded from this measure to provide a more transparent view of variable expenses, gross margin, and key operational expense ratios.

General Information for further details on our reclassifications.

Our CODM does not review total assets by segment as operating evaluations and resource allocation decisions are not made on the basis of total assets by segment.

Certain of our costs associated with our technology organization are allocated to the segments based on the segments' usage of resources.

Benefit expenses, facility costs and depreciation expense on the corporate headquarters building are allocated to the segments based on headcount.

Unallocated corporate costs include certain shared expenses such as accounting, finance, human resources, legal, corporate systems, amortization of acquired intangible assets, impairment and related charges, stock-based compensation, restructuring charges, legal reserves and other items not identifiable with one of our segments.

We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices.

The majority of the intersegment revenues and cost of revenues are fees charged by Travel Solutions to Hospitality Solutions for hotel stays booked through our GDS.

Depreciation and amortization included in cost of revenue is associated with capitalized implementation costs and intangible assets associated with contracts, supplier and distributor agreements purchased through acquisitions or established with our take private transactions in 2007.

Depreciation and amortization included in technology costs is associated with software developed for internal use that supports our products, businesses and systems and intangible assets for technology purchased through acquisitions or established through the take private transaction in 2007.

Depreciation and amortization included in selling, general and administrative expenses is associated with property and equipment, acquired customer relationships, trademarks and brand names purchased through acquisitions or established through the take private transaction in 2007.

Segment information for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Travel Network $ ( 33,262 ) $ 724,632 $ 394,441 $ 1,498,600

Airline Solutions 89,524 211,833 269,409 424,760

Travel Solutions $ 237,018 $ 919,031 $ 900,868 $ 2,842,391

Hospitality Solutions 44,924 74,818 133,163 221,525

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Adjusted Gross Profit (Loss) (a)

Travel Network $ ( 110,874 ) $ 252,293 $ 1,295 $ 534,973

Airline Solutions ( 11,017 ) 85,801 41,010 163,932

Travel Solutions $ 168,971 $ 561,372 $ 612,869 $ 1,703,704

Hospitality Solutions 24,507 35,762 61,590 104,676

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Adjusted Operating (Loss) Income (b)

Travel Network $ ( 183,331 ) $ 159,797 $ ( 161,359 ) $ 352,969

Airline Solutions ( 68,309 ) 22,660 ( 100,888 ) 38,084

Travel Solutions $ ( 146,337 ) $ 183,582 $ ( 408,584 ) $ 574,635

Hospitality Solutions ( 12,609 ) ( 4,008 ) ( 48,475 ) ( 15,471 )

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Adjusted EBITDA (c)

Travel Network $ ( 139,621 ) $ 210,364 $ ( 74,169 ) $ 453,219

Airline Solutions ( 28,417 ) 65,945 ( 20,048 ) 124,339

Travel Solutions $ ( 65,550 ) $ 277,251 $ ( 159,767 ) $ 854,809

Hospitality Solutions ( 2,222 ) 9,618 ( 15,128 ) 24,497

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Depreciation and amortization

Travel Network $ 24,634 $ 30,721 $ 49,901 $ 61,276

Airline Solutions 39,892 43,285 80,840 86,255

Travel Solutions $ 61,343 $ 72,818 $ 192,084 $ 220,349

Hospitality Solutions 10,387 13,626 33,347 39,968

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Capital Expenditures

Travel Network $ 1,586 $ 4,877 $ 3,915 $ 9,863

Airline Solutions 3,081 11,096 9,473 23,586

Travel Solutions $ 5,513 $ 11,134 $ 18,901 $ 44,583

Hospitality Solutions 645 2,275 2,962 7,669

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(a) The following table sets forth the reconciliation of Adjusted Gross Profit to operating (loss) income in our statement of operations (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Adjusted Gross Profit (Loss) $ ( 129,000 ) $ 350,438 $ 38,100 $ 723,528

Adjusted Gross Profit $ 192,832 $ 596,626 $ 672,057 $ 1,807,134

Less adjustments:

Selling, general and administrative 119,626 128,791 447,011 442,669

Technology costs 276,362 322,563 883,837 964,397

Cost of revenue adjustments:

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(b) The following table sets forth the reconciliation of Adjusted Operating (Loss) Income to operating (loss) income in our statement of operations (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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(c) The following table sets forth the reconciliation of Adjusted EBITDA to (loss) income from continuing operations in our statement of operations (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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18,431 1,769 72,015 6,118

Loss on extinguishment of debt 10,333 — 10,333 —

Acquisition-related costs (5)

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(c) 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.

(2) 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 .

(2) Our Travel Solutions 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.

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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.

(3) Other, net during the six months ended June 30, 2020 i ncludes a $ 46 million charge related to termination payments incurred in the first quarter of 2020 in connection with our proposed acquisition of 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.

Acquisitions for further detail regarding the Farelogix acquisition.

(4) Litigation costs, net represent charges associated with antitrust and other foreign non-income tax contingency matters.

(3) Other, net during the nine months ended September 30, 2020 i ncludes a $ 46 million charge related to termination payments incurred in the first quarter of 2020 in connection with the now-terminated acquisition of Farelogix and a $ 14 million pension settlement charge recorded in the third quarter of 2020, 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.

Acquisitions for further detail regarding the Farelogix acquisition and Note 10.

Accumulated Other Comprehensive Loss for discussion of the pension settlement.

(4) Litigation costs, net represent charges associated with antitrust and other foreign non-income tax contingency matters and includes the reversal of our previously accrued loss related to the US Airways legal matter for $ 32 million in the third quarter of 2019.

Contingencies.

(5) Acquisition-related costs represent fees and expenses incurred associated with the 2018 agreement to acquire Farelogix.

(5) Acquisition-related costs represent fees and expenses incurred associated with the now-terminated agreement to acquire Farelogix.

(6) 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.

Subsequent Events

The COVID-19 pandemic has caused major shifts in the travel ecosystem resulting in the changing needs of our airline, hotel and agency customers.

As a result of these strategic realignment efforts, we will operate our business and present our results through two business segments beginning in the third quarter of 2020:

All revenue and expenses previously assigned to the Travel Network and Airline Solutions business segments will be consolidated into a unified revenue and expense structure which will align with information that our CODM plans to utilize beginning in the third quarter of 2020 to evaluate segment performance and allocate resources.

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 1. Financial Statements