Sabre Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains information that may constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “expects,” "outlook," “believes,” “may,” "intends," "provisional," "plans," “will,” “predicts,” “potential,” “anticipates,” “estimates,” "should,” “plans”, "could", "likely", "commit", "guidance", "anticipate", "incremental", "preliminary", "forecast", "continue", "strategy", "confidence", "momentum", "estimate", "objective", "project", "may", or the negative of these terms or other comparable terminology. The forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions and are subject to risks, uncertainties and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Certain of these risks, uncertainties and changes in circumstances are described in the "Risk Factors" section of this Quarterly Report on Form 10-Q and in the “Risk Factors” and “Forward-Looking Statements” sections included in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. You are cautioned not to place undue reliance on these forward-looking statements. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made. The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Overview We connect people and places with technology that reimagines the business of travel. 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 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 these strategic realignment efforts, we now operate our business and present our results through two business segments effective the third quarter: (i) Travel Solutions, our global business-to-business travel marketplace 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. 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 now reported as the Travel Solutions business segment. 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 realigning certain expenses previously classified as cost of revenue to selling, general and administrative classification, considering how we assess our results of operations in the current organizational structure. Certain historical amounts have been reclassified to align with the current presentation. See Note 1. General Information for further information. A significant portion of our revenue is generated through transaction-based fees that we charge to our customers. For Travel Solutions, we generate revenue from our distribution activities through transaction fees for bookings on our global distribution system ("GDS"), and from our IT solutions through recurring usage-based fees for the use of our Software-as-a-Service ("SaaS") and hosted systems, as well as upfront fees and professional services fees. For Hospitality Solutions, we generate revenue from recurring usage-based fees for the use of our SaaS and hosted systems, as well as upfront fees and professional services fees. Items that are not allocated to our business segments are identified as corporate and primarily include stock-based compensation expense, litigation costs, corporate headcount-related costs and other items that are not identifiable with either of our segments. 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. See Note 15. Segment Information for results for the three and nine months ended September 30, 2020 by reportable segment. 30 Recent Developments Affecting our Results of Operations The travel industry continues to be adversely affected by the global health crisis due to the outbreak of the coronavirus ("COVID-19"), as well as by government directives that have been enacted to slow the spread of the virus. As expected, this pandemic has continued to have a material impact to our consolidated financial results in the third quarter of 2020, resulting in a material decrease in transaction-based revenue across both of our business units over the prior year. Additionally, our mix of transactions has shifted such that domestic bookings now exceed international bookings, negatively impacting revenue. Revenue for the second quarter was negatively impacted by approximately $100 million resulting from increased cancellation activity beyond what was initially estimated. Actual cancellations during the third quarter were fewer than expected as of the end of the second quarter. This combination of actual cancellation activity and fewer bookings resulted in a reduction in the cancellation reserve during the third quarter. Lower GDS volumes resulted in a material decline in incentive consideration costs, as expected, which was partially offset by a higher provision for expected credit losses due to the impact of the COVID-19 pandemic on the global economy and our customers and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard. Given the market conditions as the result of COVID-19, as disclosed previously, we responded with measures to increase our cash position through the suspension of common stock dividends and share repurchases under the Share Repurchase Program, borrowing under our existing revolving credit facility, and the completion of debt offerings totaling $1,120 million. Additionally, during the third quarter of 2020, we completed equity offerings which resulted in net proceeds of $598 million, extended the maturity of our Term Loan A and Revolver, and used proceeds from newly issued notes due in September 2025 to pay down Term Loan A and notes due in April 2023. See "—Liquidity and Capital Resources." We have taken the following actions with regard to our workforce and compensation programs as part of these cost reduction efforts : • A temporary reduction in base compensation pay for our US-based salaried workforce, including a 25% reduction for our CEO, from March 16, 2020 through July 5, 2020; • A temporary reduction in the cash retainer for members of our Board of Directors from March 16, 2020 through June 30, 2020; • The temporary suspension of our 401(k) match program for US-based employees; • Reductions in third-party contracting, vendor costs and other discretionary spending; • An offering of voluntary unpaid time off, voluntary severance and a voluntary early retirement program in the first quarter of 2020; • A temporary furlough of approximately one-third of our workforce during the second quarter of 2020; and • A right-sizing of our global organization through a reduction in force that impacted approximately 800 team members across 44 office locations. This reduction is in addition to the separation of approximately 400 participants in voluntary severance and voluntary early retirement programs described above. We 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. In connection with these measures, we recorded a $74 million charge associated with these restructuring activities during the nine months ended September 30, 2020. See Note 4. Restructuring Activities for further details on the costs incurred related to restructuring. Additionally, to retain key talent in this highly volatile macro environment, we have taken the following specific actions related to our compensation programs which will impact our operating expenses: • Replaced the revenue and adjusted earnings per share metrics in our 2020 annual incentive program with measures focused on expense management with payout capped at 50% of original targets, payable (if achieved) in December 2020; • Amended the key strategic initiatives associated with the long-term performance-based cash incentive awards that are payable in March 2022; • Amended the 2020 performance metrics associated with the performance stock awards that vest in March 2021; • Awarded time-based restricted stock unit awards to executive and certain key employees in June 2020, with 50% of the units vesting on the first and second anniversaries of the grant date; and • Awarded cash retention bonuses to certain key technology resources in June 2020 in conjunction with our technology transformation initiatives payable upon the completion of two and three years of service. We believe the ongoing effects of COVID-19 on our operations and global bookings will continue to have a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak. Given the uncertainties surrounding the duration of the outbreak and its impact on global travel, we cannot reasonably estimate the related financial impact to our full-year 2020 financial results, but we expect a net loss on both a U.S. GAAP and adjusted basis for the year ended December 31, 2020 despite the cost saving measures described above. 31 In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law, which provides over $2 trillion in economic relief in response to the COVID-19 pandemic. The CARES Act also modifies sections of the Internal Revenue Code of 1986, as amended ("IRC"). Certain IRC modifications relax limitations on deductions, which were enacted as part of the Tax Cuts and Jobs Act. At this time, we do not expect to participate in the CARES Act loan program for the aviation industry. In addition, we do not expect any of the provisions of the CARES Act to have a material impact on our consolidated financial statements. During the nine months ended September 30, 2020, several of our customers filed for bankruptcy protection in various jurisdictions. Due to our creditor position, we do not expect significant recovery for amounts due to us prior to the customer's filing for bankruptcy protection and have fully reserved for any amounts due; however, we continue to provide services and receive timely payment for post-bankruptcy balances due in most cases. Factors Affecting our Results In addition to the "—Recent Developments Affecting our Results of Operations" above, a discussion of trends that we believe are the most significant opportunities and challenges currently impacting our business and industry is included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Results” in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. The discussion also includes management’s assessment of the effects these trends have had and are expected to have on our results of continuing operations. This information is not an exhaustive list of all of the factors that could affect our results and should be read in conjunction with the factors referred to in the sections entitled “Risk Factors” and "Forward-Looking Statements" included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Components of Revenues and Expenses Revenues Travel Solutions generates revenues from distribution activities through Direct Billable Bookings processed on our GDS, adjusted for estimated cancellations of those bookings. Travel Solutions also generates revenues from IT solutions activities from its product offerings including reservation systems for full-cost and low-cost carriers, commercial and operations products, agency solutions and booking data. Hospitality Solutions generates revenue through upfront solution fees and recurring usage-based fees for the use of our software solutions hosted on secure platforms or deployed through our SaaS and through other professional service fees including Digital Experience ("DX"). Certain professional service fees are discrete sales opportunities that may have a high degree of variability from period to period, and we cannot guarantee that we will have such fees in the future consistent with prior periods. Travel Solutions also generates revenue through software licensing and maintenance fees. Recognition of license fees upon delivery has previously resulted and will continue to result in periodic fluctuations in revenue recognized. Cost of Revenue Cost of revenue incurred by Travel Solutions and Hospitality Solutions consists primarily of costs associated with the delivery and distribution of our products and services and includes employee-related costs for our delivery, customer operations and call center teams as well as allocated overhead such as facilities and other support costs. Cost of revenue for Travel Solutions also includes incentive consideration expense representing payments or other consideration to travel agencies for reservations made on our GDS which accrue on a monthly basis. Corporate cost of revenue includes certain expenses such as stock-based compensation and restructuring charges and other items not identifiable with either of our segments. 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. Cost of revenue also includes amortization of upfront incentive consideration representing upfront payments or other consideration provided to travel agencies for reservations made on our GDS which are capitalized and amortized over the expected life of the contract. We have reclassified expenses on our statement of operations to provide additional clarification on our costs. As a result, cost of revenue decreased by $332 million and $981 million for the three and nine months ended September 30, 2019, respectively. See Note 1. General Information for more information. Technology Costs Technology costs incurred by Travel Solutions and Hospitality Solutions consist of expenses related to technology operations including 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. 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. 32 As discussed in Note 1. General Information, we have reclassified expenses on our statement of operations to provide additional clarification on our costs by separately reporting technology costs. 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. 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. Selling, General and Administrative Expenses 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. 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. We have reclassified expenses on our statement of operations to provide additional clarification on our costs. As a result , selling, general and administrative expenses increased by $9 million and $17 million for the three and nine months ended September 30, 2019, respectively. See Note 1. General Information for more information. Intersegment Transactions We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. Hospitality Solutions pays fees to Travel Solutions for hotel stays booked through our GDS. Key Metrics “Direct Billable Bookings” and “Passengers Boarded” are the primary metrics utilized by Travel Solutions to measure operating performance. Travel Solutions generates distribution revenue for each Direct Billable Booking which include bookings made through our GDS (e.g., Air, and Lodging, Ground and Sea ("LGS")) and through our equity method investments in cases where we are paid directly by the travel supplier and for Air Bookings, are presented net of bookings cancelled within the period presented. Travel Solutions also recognizes IT solutions revenue from recurring usage based fees for Passengers Boarded ("PBs"). The primary metric utilized by Hospitality Solutions is booking transactions processed through the Sabre Hospitality Solutions SynXis Central Reservation System (the "HS Central Reservation System"). These key metrics allow management to analyze customer volume over time for each of our business segments to monitor industry trends and analyze performance. We believe that these key metrics are useful for investors and other third parties as indicators of our financial performance and industry trends. While these metrics are based on what we believe to be reasonable estimates of our transaction counts for the applicable period of measurement, there are inherent challenges associated with their measurement. In addition, we are continually seeking to improve our estimates of these metrics, and these estimates may change due to improvements or changes in our methodology. The following table sets forth these key metrics for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % Change 2020 2019 % Change Travel Solutions Direct Billable Bookings - Air 16,539 123,586 (86.6)% 80,439 386,752 (79.2)% Direct Billable Bookings - LGS 3,381 17,327 (80.5)% 17,932 51,223 (65.0)% Distribution Total Direct Billable Bookings 19,920 140,913 (85.9)% 98,371 437,975 (77.5)% IT Solutions Passengers Boarded 56,970 187,373 (69.6)% 244,144 553,936 (55.9)% Hospitality Solutions Central Reservations System Transactions 19,268 30,462 (36.7)% 51,381 82,376 (37.6)% 33 Definitions of Non-GAAP Financial Measures We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this Quarterly Report on Form 10-Q, including Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income from continuing operations ("Adjusted Net (Loss) Income"), Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures. As a result of our business 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 other financial measures, 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) and excluded from this measure to provide a more transparent view of variable expenses, gross margin, and key operational expense ratios. We define Adjusted Gross Profit (Loss) as operating (loss) income adjusted for selling, general and administrative expenses, technology costs, the cost of revenue portion of depreciation and amortization, restructuring and other costs, amortization of upfront incentive consideration, and stock-based compensation included in cost of revenue. We define Adjusted Operating (Loss) Income as operating (loss) income adjusted for equity method (loss) income, acquisition-related amortization, restructuring and other costs, acquisition-related costs, litigation costs, net, and stock-based compensation. We define Adjusted Net (Loss) Income as net (loss) income attributable to common stockholders adjusted for loss (income) from discontinued operations, net of tax, net income attributable to noncontrolling interests, acquisition-related amortization, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs, net, stock-based compensation, and the tax impact of adjustments. We define Adjusted EBITDA as Adjusted Net (Loss) Income adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, amortization of upfront incentive consideration, interest expense, net, and the remaining provision for income taxes. We define Free Cash Flow as cash (used in) provided by operating activities less cash used in additions to property and equipment. We define Adjusted Net (Loss) Income from continuing operations per share as Adjusted Net (Loss) Income divided by diluted weighted-average common shares outstanding. These non-GAAP financial measures are key metrics used by management and our board of directors to monitor our ongoing core operations because historical results have been significantly impacted by events that are unrelated to our core operations as a result of changes to our business and the regulatory environment. We believe that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate our ability to service debt obligations, fund capital expenditures and meet working capital requirements. We also believe that Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income and Adjusted EBITDA assist investors in company-to-company and period-to-period comparisons by excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the impact of depreciation and amortization expense. In addition, amounts derived from Adjusted EBITDA are a primary component of certain covenants under our senior secured credit facilities. 34 Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income, Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures are not recognized terms under GAAP. These non-GAAP financial measures and ratios based on them are unaudited and have important limitations as analytical tools, and should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating performance or cash flows from operating activities as measures of liquidity. These non-GAAP financial measures and ratios based on them exclude some, but not all, items that affect net income or cash flows from operating activities and these measures may vary among companies. Our use of these measures has limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are: • these non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation expense and amortization of acquired intangible assets; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted Gross Profit (Loss) and Adjusted EBITDA do not reflect cash requirements for such replacements; • Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; • Adjusted Gross Profit (Loss) does not include technology costs, including transaction-based technology costs, which differs from our previous presentations; • Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; • Free Cash Flow removes the impact of accrual-basis accounting on asset accounts and non-debt liability accounts, and does not reflect the cash requirements necessary to service the principal payments on our indebtedness; and • other companies, including companies in our industry, may calculate Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income, Adjusted EBITDA or Free Cash Flow differently, which reduces their usefulness as comparative measures. 35 The following table sets forth the reconciliation of net (loss) income attributable to common stockholders to Adjusted Net (Loss) Income, Adjusted EBITDA and Adjusted Operating (Loss) Income (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net (loss) income attributable to common stockholders $ (312,449) $ 63,813 $ (969,260) $ 148,501 Loss from discontinued operations, net of tax 533 596 3,331 698 Net income attributable to non-controlling interests (1) 125 771 837 3,289 Preferred stock dividends 2,231 — 2,231 — (Loss) income from continuing operations (309,560) 65,180 (962,861) 152,488 Adjustments: Acquisition-related amortization (2a) 16,465 15,976 49,775 47,971 Restructuring and other costs (8) 947 — 74,229 — Loss on extinguishment of debt 10,333 — 10,333 — Other, net (4) 18,431 1,769 72,015 6,118 Acquisition-related costs (6) 591 9,696 22,791 30,337 Litigation costs, net (5) 247 (24,179) 2,103 (21,355) Stock-based compensation 18,566 17,094 44,905 51,083 Tax impact of adjustments (7) 3,633 (11,971) 8,384 (31,424) Adjusted Net (Loss) Income from continuing operations $ (240,347) $ 73,565 $ (678,326) $ 235,218 Adjusted Net (Loss) Income from continuing operations per share $ (0.82) $ 0.27 $ (2.42) $ 0.85 Diluted weighted-average common shares outstanding 292,392 276,235 280,750 276,474 Adjusted Net (Loss) Income from continuing operations $ (240,347) $ 73,565 $ (678,326) $ 235,218 Adjustments: Depreciation and amortization of property and equipment (2b) 63,733 78,060 201,274 232,617 Amortization of capitalized implementation costs (2c) 9,146 9,579 28,110 31,317 Amortization of upfront incentive consideration (3) 19,444 20,851 56,733 59,825 Interest expense, net 67,651 39,743 163,674 117,364 Remaining provision for income taxes (23,997) 19,766 (61,720) 63,207 Adjusted EBITDA $ (104,370) $ 241,564 $ (290,255) $ 739,548 Less: Depreciation and amortization (2) 89,344 103,615 279,159 311,905 Amortization of upfront incentive consideration (3) 19,444 20,851 56,733 59,825 Acquisition-related amortization (2a) (16,465) (15,976) (49,775) (47,971) Adjusted Operating (Loss) Income $ (196,693) $ 133,074 $ (576,372) $ 415,789 36 The following tables set forth the reconciliation of operating (loss) income in our statement of operations to Adjusted Gross Profit (Loss), Adjusted EBITDA and Adjusted Operating (Loss) Income by business segment (in thousands): Three Months Ended September 30, 2020 Travel Solutions Hospitality Solutions Corporate Total Operating loss $ (145,877) $ (12,609) $ (74,563) $ (233,049) Add back: Selling, general and administrative 55,870 10,501 53,255 119,626 Technology costs 232,666 25,332 18,364 276,362 Cost of revenue adjustments: Depreciation and amortization (2) 6,868 1,283 1,113 9,264 Restructuring and other costs (8) — — (237) (237) Amortization of upfront incentive consideration (3) 19,444 — — 19,444 Stock-based compensation — — 1,422 1,422 Adjusted Gross Profit (Loss) 168,971 24,507 (646) 192,832 Selling, general and administrative (55,870) (10,501) (53,255) (119,626) Technology costs (232,666) (25,332) (18,364) (276,362) Equity method loss (460) — — (460) Selling, general and administrative and technology costs adjustments: Depreciation and amortization (2) 54,475 9,104 16,501 80,080 Restructuring and other costs (8) — — 1,184 1,184 Acquisition-related costs (6) — — 591 591 Litigation costs, net (5) — — 247 247 Stock-based compensation — — 17,144 17,144 Adjusted EBITDA (65,550) (2,222) (36,598) (104,370) Less: Depreciation and amortization (2) 61,343 10,387 17,614 89,344 Amortization of upfront incentive consideration (3) 19,444 — — 19,444 Acquisition-related amortization (2a) — — (16,465) (16,465) Adjusted Operating Loss $ (146,337) $ (12,609) $ (37,747) $ (196,693) 37 Three Months Ended September 30, 2019 Travel Solutions Hospitality Solutions Corporate Total Operating income (loss) $ 182,555 $ (4,008) $ (65,087) $ 113,460 Add back: Selling, general and administrative 74,227 10,061 44,503 128,791 Technology costs 276,572 28,322 17,669 322,563 Cost of revenue adjustments: Depreciation and amortization (2) 7,167 1,387 871 9,425 Amortization of upfront incentive consideration (3) 20,851 — — 20,851 Stock-based compensation — — 1,536 1,536 Adjusted Gross Profit (Loss) 561,372 35,762 (508) 596,626 Selling, general and administrative (74,227) (10,061) (44,503) (128,791) Technology costs (276,572) (28,322) (17,669) (322,563) Equity method income 1,027 — — 1,027 Selling, general and administrative and technology costs adjustments: Depreciation and amortization (2) 65,651 12,239 16,300 94,190 Acquisition-related costs (6) — — 9,696 9,696 Litigation costs, net (5) — — (24,179) (24,179) Stock-based compensation — — 15,558 15,558 Adjusted EBITDA 277,251 9,618 (45,305) 241,564 Less: Depreciation and amortization (2) 72,818 13,626 17,171 103,615 Amortization of upfront incentive consideration (3) 20,851 — — 20,851 Acquisition-related amortization (2a) — — (15,976) (15,976) Adjusted Operating Income (Loss) $ 183,582 $ (4,008) $ (46,500) $ 133,074 Nine Months Ended September 30, 2020 Travel Solutions Hospitality Solutions Corporate Total Operating loss $ (406,939) $ (48,475) $ (313,116) $ (768,530) Add back: Selling, general and administrative 217,103 31,498 198,410 447,011 Technology costs 724,609 74,954 84,274 883,837 Cost of revenue adjustments: Depreciation and amortization (2) 21,363 3,613 2,870 27,846 Restructuring and other costs (8) — — 21,492 21,492 Amortization of upfront incentive consideration (3) 56,733 — — 56,733 Stock-based compensation — — 3,668 3,668 Adjusted Gross Profit (Loss) 612,869 61,590 (2,402) 672,057 Selling, general and administrative (217,103) (31,498) (198,410) (447,011) Technology costs (724,609) (74,954) (84,274) (883,837) Equity method loss (1,645) — — (1,645) Selling, general and administrative and technology costs adjustments: Depreciation and amortization (2) 170,721 29,734 50,858 251,313 Restructuring and other costs (8) — — 52,737 52,737 Acquisition-related costs (6) — — 22,791 22,791 Litigation costs, net (5) — — 2,103 2,103 Stock-based compensation — — 41,237 41,237 Adjusted EBITDA (159,767) (15,128) (115,360) (290,255) Less: Depreciation and amortization (2) 192,084 33,347 53,728 279,159 Amortization of upfront incentive consideration (3) 56,733 — — 56,733 Acquisition-related amortization (2a) — — (49,775) (49,775) Adjusted Operating Loss $ (408,584) $ (48,475) $ (119,313) $ (576,372) 38 Nine Months Ended September 30, 2019 Travel Solutions Hospitality Solutions Corporate Total Operating income (loss) $ 572,662 $ (15,471) $ (251,411) $ 305,780 Add back: Selling, general and administrative 221,549 32,070 189,050 442,669 Technology costs 826,680 83,969 53,748 964,397 Cost of revenue adjustments: Depreciation and amortization (2) 22,988 4,108 2,609 29,705 Amortization of upfront incentive consideration (3) 59,825 — — 59,825 Stock-based compensation — — 4,758 4,758 Adjusted Gross Profit (Loss) 1,703,704 104,676 (1,246) 1,807,134 Selling, general and administrative (221,549) (32,070) (189,050) (442,669) Technology costs (826,680) (83,969) (53,748) (964,397) Equity method income 1,973 — — 1,973 Selling, general and administrative and technology costs adjustments: Depreciation and amortization (2) 197,361 35,860 48,979 282,200 Acquisition-related costs (6) — — 30,337 30,337 Litigation costs, net (5) — — (21,355) (21,355) Stock-based compensation — — 46,325 46,325 Adjusted EBITDA 854,809 24,497 (139,758) 739,548 Less: Depreciation and amortization (2) 220,349 39,968 51,588 311,905 Amortization of upfront incentive consideration (3) 59,825 — — 59,825 Acquisition-related amortization (2a) — — (47,971) (47,971) Adjusted Operating Income (Loss) $ 574,635 $ (15,471) $ (143,375) $ 415,789 The following tables present information from our statements of cash flows and set forth the reconciliation of Free Cash Flow to cash (used in) provided by operating activities, the most directly comparable GAAP measure (in thousands): Nine Months Ended September 30, 2020 2019 Cash (used in) provided by operating activities $ (587,069) $ 424,365 Cash used in investing activities (52,634) (108,482) Cash provided by (used in) financing activities 1,873,804 (351,424) Nine Months Ended September 30, 2020 2019 Cash (used in) provided by operating activities $ (587,069) $ 424,365 Additions to property and equipment (48,259) (92,124) Free Cash Flow $ (635,328) $ 332,241 ______________________________ (1) Net income attributable to non-controlling interests represents an adjustment to include earnings allocated to non-controlling interests held in (i) Sabre Travel Network Middle East of 40%, (ii) Sabre Seyahat Dagitim Sistemleri A.S. of 40%, (iii) Sabre Travel Network Lanka (Pte) Ltd of 40%, and (iv) Sabre Bulgaria of 40%. (2) Depreciation and amortization expenses: (a) Acquisition-related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date. (b) Depreciation and amortization of property and equipment includes software developed for internal use as well as amortization of contract acquisition costs. (c) Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model. (3) Our Travel 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. These service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed 39 the cost of the incentive consideration provided up front. These service contracts with travel agency subscribers require that the customer commit to achieving certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those objectives are not met. (4) Other, net includes a $46 million charge related to termination payments incurred in the first quarter of 2020 in connection with the now-terminated acquisition of Farelogix Inc. ("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. See Note 3. Acquisitions for further detail regarding the now-terminated Farelogix acquisition and Note 10. Accumulated Other Comprehensive Loss for discussion of the pension settlement. . (5) Litigation costs, net represent charges associated with antitrust litigation 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. See Note 14. Contingencies , to our consolidated financial statements. (6) Acquisition-related costs represent fees and expenses incurred associated with the now-terminated agreement to acquire Farelogix. See Note 3. Acquisitions. (7) The tax impact of adjustments includes the tax effect of each separate adjustment based on the statutory tax rate for the jurisdiction(s) in which the adjustment was taxable or deductible, and the tax effect of items that relate to tax specific financial transactions, tax law changes, uncertain tax positions, valuation allowance assessments and other items. (8) Restructuring and other costs represent charges associated with business restructuring and associated changes , including a strategic realignment of our airline and agency-focused businesses, as well as other measures to support the new organizational structure and to respond to the impacts of the COVID-19 pandemic on our business and cost structure. See Note 4. Restructuring Activities for further details. 40 Results of Operations The following table sets forth our consolidated statement of operations data for each of the periods presented: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (Amounts in thousands) Revenue $ 278,365 $ 984,199 $ 1,020,386 $ 3,033,566 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 Operating (loss) income (233,049) 113,460 (768,530) 305,780 Interest expense, net (67,651) (39,743) (163,674) (117,364) Loss on debt extinguishment (10,333) — (10,333) — Equity method (loss) income (460) 1,027 (1,645) 1,973 Other expense, net (18,431) (1,769) (72,015) (6,118) (Loss) income from continuing operations before income taxes (329,924) 72,975 (1,016,197) 184,271 Provision for income taxes (20,364) 7,795 (53,336) 31,783 (Loss) income from continuing operations $ (309,560) $ 65,180 $ (962,861) $ 152,488 Three Months Ended September 30, 2020 and 2019 Revenue Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Travel Solutions $ 237,018 $ 919,031 $ (682,013) (74) % Hospitality Solutions 44,924 74,818 (29,894) (40) % Total segment revenue 281,942 993,849 (711,907) (72) % Eliminations (3,577) (9,650) 6,073 63 % Total revenue $ 278,365 $ 984,199 $ (705,834) (72) % Travel Solutions— Revenue decreased $682 million, or 74%, for the three months ended September 30, 2020 compared to the same period in the prior year, primarily due to: • a $569 million, or 84%, decrease in transaction-based distribution revenue primarily due to a 86% decrease in Direct Billable Bookings to 20 million resulting from lower transaction volume as the result of the COVID-19 pandemic, partially offset by $18 million of revenue 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; • a $113 million decrease in IT solutions revenue consisting of a $84 million, or 65%, decrease in reservation revenue primarily due to the impact of the COVID-19 pandemic on our existing customer base. This decrease was partially offset by an increase of $3 million driven by the acquisition of Radixx in October 2019. Passengers Boarded, inclusive of Radixx, decreased by 70% to 57 million for the three months ended September 30, 2020. Additionally, commercial and operations revenue decreased $32 million primarily due to the impact of the COVID-19 pandemic on our existing customer base. Hospitality Solutions— Revenue decreased $30 million, or 40%, for the three months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 37% to 19 million, as a result of the COVID-19 pandemic. 41 Cost of Revenue Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Travel Solutions $ 68,047 $ 357,660 $ (289,613) (81) % Hospitality Solutions 20,417 39,056 (18,639) (48) % Eliminations (3,578) (9,650) 6,072 63 % Total segment cost of revenue 84,886 387,066 (302,180) (78) % Corporate 1,832 2,044 (212) (10) % Depreciation and amortization 9,264 9,423 (159) (2) % Amortization of upfront incentive consideration 19,444 20,852 (1,408) (7) % Total cost of revenue $ 115,426 $ 419,385 $ (303,959) (72) % Travel Solutions— Cost of revenue decreased $290 million, or 81%, for the three months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily the result of a $281 million decline in incentive consideration in all regions due to lower transaction volume as the result of the COVID-19 pandemic, as well as a $8 million reduction in labor and professional services costs in connection with our cost reduction measures. Hospitality Solutions— Cost of revenue decreased $19 million, or 48%, for the three months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily driven by a $15 million reduction in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures. Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased $1 million for the three months ended September 30, 2020 compared to the same period in the prior year. The decrease is primarily due to a reduction in upfront consideration provided to travel agencies. Technology Costs Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Technology costs $ 276,362 $ 322,563 $ (46,201) (14) % Technology costs decreased $46 million, or 14%, for the three months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily driven by reductions impacting our Travel Solutions and Hospitality Solutions segments, including a $25 million decline in technology costs associated with lower transaction volumes resulting from the COVID-19 pandemic, a $15 million decrease in depreciation and amortization due to a change in the mix of our technology spend in 2019 resulting in less capitalized internal use software, and a reduction in technology labor of $17 million in connection with our cost reduction measures. This decrease was partially offset by a continued decline in the capitalization mix of our technology spend as we implement opensource and cloud-based solutions, resulting in a $9 million increase in labor costs. Corporate technology costs increased due to a restructuring charge of $1 million for severance benefits. Selling, General and Administrative Expenses Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Selling, general and administrative $ 119,626 $ 128,791 $ (9,165) (7) % Selling, general and administrative expenses decreased $9 million, or 7%, for the three months ended September 30, 2020 compared to the same period in the prior year, primarily driven by a $24 million decrease in labor and professional services costs in connection with our cost reduction measures, a $9 million decrease in legal costs associated with the now-terminated acquisition of Farelogix, a $3 million decrease in other litigation costs, and a reduction in other costs due to our expense management initiatives. The decrease is substantially offset by an increase of $32 million due to the reversal of a previously accrued loss in the prior year related to the US Airways legal matter and an $8 million increase in the provision for expected credit losses, primarily related to fully reserving for aged balances related to certain customers and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard. 42 Interest expense, net Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Interest expense, net $ 67,651 $ 39,743 $ 27,908 70 % Interest expense increased $28 million during the three months ended September 30, 2020 compared to the same period in the prior year primarily due to additional borrowings under the 9.250% senior secured notes due 2025 and the 4.000% senior exchangeable notes due 2025 entered into during the second quarter of 2020 and the 7.375% senior secured notes due 2025 entered into in the third quarter of 2020. Loss on Extinguishment of Debt Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Loss on extinguishment of debt $ 10,333 $ — $ 10,333 ** ** not meaningful As a result of the debt refinancing in the third quarter of 2020, we recognized a loss on extinguishment of debt of $10 million during the three months ended September 30, 2020 which consisted of a redemption premium of $7 million and the write-off of unamortized debt issuance costs of $3 million. Other expense, net Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Other expense, net $ 18,431 $ 1,769 $ 16,662 ** ** not meaningful Other expense, net increased $17 million for the three months ended September 30, 2020 compared to the same period in the prior year primarily due to a pension plan settlement charge of $14 million recognized in the third quarter of 2020 as well as realized and unrealized foreign currency exchange losses. Provision for Income Taxes Three Months Ended September 30, 2020 2019 Change (Amounts in thousands) Provision for income taxes $ (20,364) $ 7,795 $ (28,159) (361) % Our effective tax rates for the three months ended September 30, 2020 and 2019 were 6% and 11%, respectively. The decrease in the effective tax rate for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to a $45 million valuation allowance recorded on tax losses generated in the current quarter related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective three month periods. The difference between our effective tax rates and the U.S. federal statutory income tax rate primarily results from our geographic mix of taxable income in various tax jurisdictions, tax permanent differences and tax credits. 43 Nine Months Ended September 30, 2020 and 2019 Revenue Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Travel Solutions $ 900,868 $ 2,842,391 $ (1,941,523) (68) % Hospitality Solutions 133,163 221,525 (88,362) (40) % Total segment revenue 1,034,031 3,063,916 (2,029,885) (66) % Eliminations (13,645) (30,350) 16,705 55 % Total revenue $ 1,020,386 $ 3,033,566 $ (2,013,180) (66) % Travel Solutions— Revenue decreased $1,942 million, or 68%, for the nine months ended September 30, 2020 compared to the same period in the prior year, primarily due to: • a $1,642 million, or 78%, decrease in transaction-based distribution revenue primarily due to a 78% decrease in Direct Billable Bookings to 98 million resulting from lower transaction volume as the result of the COVID-19 pandemic; and • a $300 million decrease in IT solutions revenue consisting of a $209 million, or 55%, decrease in reservation revenue primarily due to the impact of the COVID-19 pandemic on our existing customer base and a $28 million decrease in revenue compared to the same period in the prior year due to the transition away from our services by certain customers and Jet Airways' insolvency in April 2019. This decrease was partially offset by an increase of $12 million driven by the acquisition of Radixx in October 2019. Passengers Boarded, inclusive of Radixx, decreased by 56% to 244 million for the nine months ended September 30, 2020. Additionally, commercial and operations revenue decreased $103 million primarily due to the impact of the COVID-19 pandemic on our existing customer base. Hospitality Solutions— Revenue decreased $88 million, or 40%, for the nine months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 38% to 51 million, as a result of the COVID-19 pandemic. Cost of Revenue Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Travel Solutions $ 287,999 $ 1,138,685 $ (850,686) (75) % Hospitality Solutions 71,573 116,850 (45,277) (39) % Eliminations (13,645) (30,336) 16,691 55 % Total segment cost of revenue 345,927 1,225,199 (879,272) (72) % Corporate 27,562 5,991 21,571 360 % Depreciation and amortization 27,846 29,705 (1,859) (6) % Amortization of upfront incentive consideration 56,733 59,825 (3,092) (5) % Total cost of revenue $ 458,068 $ 1,320,720 $ (862,652) (65) % Travel Solutions— Cost of revenue decreased $851 million, or 75%, for the nine months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily the result of a $821 million decline in incentive consideration in all regions due to lower transaction volumes as a result of the COVID-19 pandemic, as well as a $26 million reduction in labor and professional services costs in connection with our cost reduction measures. Hospitality Solutions— Cost of revenue decreased $45 million, or 39%, for the nine months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily driven by $38 million reduction in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures. Corporate— Cost of revenue associated with corporate costs increased $22 million, or 360%, for the nine months ended September 30, 2020 compared to the same period in the prior year. This increase was primarily due to a restructuring charge of $22 million for severance benefits. Depreciation and amortization— Depreciation and amortization decreased $2 million, or 6%, for the nine months ended September 30, 2020 compared to the same period in the prior year. The decrease is primarily due to customer implementations that became fully amortized during the nine months ended September 30, 2020. 44 Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased $3 million, or 5%, for the nine months ended September 30, 2020 compared to the same period in the prior year. The decrease is primarily due to a reduction in upfront consideration provided to travel agencies. Technology Costs Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Technology costs $ 883,837 $ 964,397 $ (80,560) (8) % Technology costs decreased $81 million, or 8%, for the nine months ended September 30, 2020 compared to the same period in the prior year. The decrease was primarily driven by reductions impacting our Travel Solutions and Hospitality Solutions segments, including a decrease in technology labor of $75 million in connection with our cost reduction measures, a $39 million decline in technology costs associated with lower transaction volumes resulting from the COVID-19 pandemic, and a $33 million decrease in depreciation and amortization primarily due to a change in the mix of our technology spend in 2019 resulting in less capitalized internal use software. This decrease was partially offset by a continued decline in the capitalization mix of our technology spend as we implement opensource and cloud-based solutions, resulting in a $35 million increase in labor costs. Corporate technology costs increased due to a restructuring charge of $32 million for severance benefits. Selling, General and Administrative Expenses Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Selling, general and administrative $ 447,011 $ 442,669 $ 4,342 1 % Selling, general and administrative expenses increased $4 million, or 1%, for the nine months ended September 30, 2020 compared to the same period in the prior year, primarily driven by a $42 million increase in the provision for expected credit losses, primarily related to fully reserving for aged balances related to certain customers, an increase in bankruptcy-related reserves, an increase in our forecasted credit losses due to the impact of the COVID-19 pandemic on the global economy and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard. The increase is also due to a restructuring charge of $20 million for severance benefits recorded in the current year and an increase of $32 million due to the reversal of a previously accrued loss in the prior year related to the US Airways legal matter. The increase is substantially offset by a $58 million decrease in labor and professional services costs in connection with our cost reduction measures, a $7 million decrease in legal costs associated with the now-terminated acquisition of Farelogix and a reduction in other costs due to our expense management initiatives. Interest expense, net Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Interest expense, net $ 163,674 $ 117,364 $ 46,310 39 % Interest expense increased $46 million during the nine months ended September 30, 2020 compared to the same period in the prior year primarily due to additional borrowings under the 9.250% senior secured notes due 2025 and the 4.000% senior exchangeable notes due 2025 entered into during the second quarter of 2020 and the 7.375% senior secured notes due 2025 entered into in the third quarter of 2020. Loss on Extinguishment of Debt Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Loss on extinguishment of debt $ 10,333 $ — $ 10,333 ** ** not meaningful As a result of the debt refinancing in the third quarter of 2020, we recognized a loss on extinguishment of debt of $10 million during the nine months ended September 30, 2020 which consisted of a redemption premium of $7 million and the write-off of unamortized debt issuance costs of $3 million. 45 Other expense, net Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Other expense, net $ 72,015 $ 6,118 $ 65,897 ** ** not meaningful Other expense, net increased $66 million for the nine months ended September 30, 2020 compared to the same period in the prior year primarily due to a $46 million charge related to termination payments in connection with our proposed acquisition of Farelogix, a pension plan settlement charge of $14 million, and realized and unrealized foreign currency exchange losses. The increase is also due to a benefit recognized in the prior year associated with a reduction to our TRA liability due to the settlement of an audit. See Note 3. Acquisitions for further detail regarding the Farelogix acquisition. Provision for Income Taxes Nine Months Ended September 30, 2020 2019 Change (Amounts in thousands) Provision for income taxes $ (53,336) $ 31,783 $ (85,119) (268) % 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 $139 million valuation allowance recorded on tax losses generated in the current tax year related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective nine month periods. The difference between our effective tax rates and the U.S. federal statutory income tax rate primarily results from our geographic mix of taxable income in various tax jurisdictions, tax permanent differences and tax credits. Liquidity and Capital Resources Our principal sources of liquidity are: (i) cash flows from operations, (ii) cash and cash equivalents and (iii) borrowings under our $400 million revolving credit facility ("Revolver") (see “—Senior Secured Credit Facilities”). Borrowing availability under our Revolver is reduced by our outstanding letters of credit and restricted cash collateral. As of September 30, 2020 and December 31, 2019, our cash and cash equivalents, Revolver and outstanding letters of credit were as follows (in thousands): September 30, 2020 December 31, 2019 Cash and cash equivalents $ 1,668,352 $ 436,176 Available balance under the Revolver 13,994 388,396 Reductions to the Revolver: Revolver outstanding balance 375,000 — Outstanding letters of credit 11,006 11,604 We consider cash equivalents to be highly liquid investments that are readily convertible into cash. Securities with contractual maturities of three months or less, when purchased, are considered cash equivalents. We record changes in a book overdraft position, in which our bank account is not overdrawn but recently issued and outstanding checks result in a negative general ledger balance, as cash flows from financing activities. We invest in a money market fund which is classified as cash and cash equivalents in our consolidated balance sheets and statements of cash flows. We held no short-term investments as of September 30, 2020 and December 31, 2019. As of December 31, 2018, we have utilized substantially all of our U.S. federal NOLs and a portion of our available U.S. federal tax credits. As a result, we previously expected to be a U.S federal cash tax payer in 2020 and future years. Because of the significant adverse impact of the COVID-19 pandemic on our business, however, we expect to have significant NOLs related to the current year and we do not expect to be a U.S. federal cash tax payer for 2020. Liquidity Outlook The reduction in revenues as the result of COVID-19 has significantly adversely affected our liquidity. As previously disclosed, we responded with measures to increase our cash position, including the suspension of common stock dividends and share repurchases under the Share Repurchase Program (the "Share Repurchase Program"), borrowing under our Revolver, implementation of cost savings measures, and the completion of debt offerings. Additionally, during the third quarter of 2020, we completed equity offerings which resulted in net proceeds of $598 million, extended the maturity of our Term Loan A and Revolver and used proceeds from newly issued notes due in September 2025 to pay down Term Loan A and notes due in April 2023. Given the magnitude of travel decline and the unknown duration of the COVID-19 impact, we will continue to monitor travel activity and take additional steps should we determine they are necessary. 46 We believe that approximately two-thirds of our cost structure is adjustable in the near-term, comprised largely of incentive expenses that decline proportionally with bookings and including other variable expenses that are subject to the cost savings measures described below. Given the uncertainties surrounding the duration and effects of COVID-19 on transaction volumes in the global travel industry, particularly air travel transaction volumes, including from airlines’ insolvency or suspension of service or aircraft groundings, we cannot provide assurance that the assumptions used to estimate our liquidity requirements will be accurate. However, based on our assumptions and estimates with respect to our financial condition, we believe that we have resources to sufficiently fund our liquidity requirements over at least the next twelve months. We may conduct debt or equity offerings to support future strategic investments, provide additional liquidity, or pay down debt. We utilize cash and cash equivalents, supplemented by our Revolver, primarily to pay our operating expenses, make capital expenditures, invest in our information technology infrastructure, products and offerings, pay taxes, and service our debt and other long-term liabilities. On 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”). On April 17, 2020, Sabre GLBL entered into two new debt agreements consisting of the following: (1) $775 million aggregate principal amount of 9.250% senior secured notes due 2025 (the “Secured Notes”) and (2) $345 million aggregate principal amount of 4.000% senior exchangeable notes due 2025 (the “Exchangeable Notes” and together with the Secured Notes, the “Notes”). On March 17, 2020, we drew $375 million under the Revolver to supplement our liquidity needs. We had $375 million outstanding under the Revolver as of 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, which reduced our overall credit capacity under the Revolver. The current interest rate for borrowings under the Revolver is LIBOR plus an adjusted spread based on leverage as reflected in the Revolver. On August 27, 2020, Sabre GLBL entered into an amendment to the Amended and Restated Credit Agreement which extended the maturity of the Revolver from July 1, 2022 to August 16, 2023, subject to certain "springing" maturity conditions that may extend the maturity to February 22, 2024 at the latest and extended the maturity of the remaining balance of Term Loan A from July 1, 2022 to August 16, 2023, subject to certain "springing" maturity conditions that may extend the maturity to February 22, 2024 at the latest. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations. Our ability to make payments on and to refinance our indebtedness, and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control, including the impacts of COVID-19. See “Risk Factors—The ongoing impact of the COVID-19 outbreak on our business and results of operations is highly uncertain" and "—We may require more cash than we generate in our operating activities, and additional funding on reasonable terms or at all may not be available.” Given the impacts of COVID-19 as discussed above, we have currently suspended share repurchases under our Share Repurchase Program as well as the payment of quarterly cash dividends on our common stock, effective with respect to the dividends occurring after the March 30, 2020 payment. See “—Recent Events Impacting our Liquidity and Capital Resources.” We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and this negative impact may continue well beyond the containment of the outbreak. On an ongoing basis, we will evaluate and consider strategic acquisitions, divestitures, joint ventures, equity method investments, repurchasing shares of our common stock (including pursuant to our multi-year $500 million Share Repurchase Program) or our outstanding debt obligations in open market or in privately negotiated transactions, as well as other transactions we believe may create stockholder value or enhance financial performance. These transactions may require cash expenditures or generate proceeds and, to the extent they require cash expenditures, may be funded through a combination of cash on hand, debt or equity offerings, or utilization of our Revolver. Recent Events Impacting Our Liquidity and Capital Resources Debt Agreements On August 27, 2020, Sabre GLBL entered into a new debt agreement consisting of $850 million aggregate principal amount of 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, were 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 2023; and (3) repay approximately $3 million principal amount of debt under the Term Loan B. See Note 7. Debt for further information. On April 17, 2020, Sabre GLBL entered into two new debt agreements consisting of the following: (1) $775 million aggregate principal amount of the Secured Notes and (2) $345 million aggregate principal amount of the Exchangeable Notes. See Note 7. Debt for further information. The Secured Notes are jointly and severally, irrevocably and unconditionally guaranteed by Sabre Holdings and all of Sabre GLBL’s restricted subsidiaries that guarantee the Issuer’s credit facility. The Secured Notes bear interest at a rate of 47 9.250% per annum and interest payments are due semi-annually on April 15 and October 15 of each year, beginning with October 15, 2020. The Secured Notes mature on April 15, 2025. The Exchangeable Notes are senior, unsecured obligations of Sabre GLBL, accrue interest payable semi-annually in arrears and mature on April 15, 2025, unless earlier repurchased or exchanged. The Exchangeable Notes are exchangeable at their holders’ election, under specified circumstances, into consideration based on Sabre common stock. This consideration consists of shares of Sabre common stock, cash, or a mixture of the two at Sabre GLBL’s election. Upon any future occurrence of a “fundamental change” (as defined in the indenture governing the Exchangeable Notes), holders may require Sabre GLBL to repurchase their Exchangeable Notes at a price equal to principal amount plus accrued and unpaid interest. The Exchangeable Notes bear interest at a rate of 4.00% per annum and interest payments are due semi-annually on April 15 and October 15 of each year, beginning with October 15, 2020. The Exchangeable Notes are guaranteed on a senior unsecured basis by Sabre and Sabre Holdings. The net proceeds from the sales of the Notes are being used for general corporate purposes. Equity Offerings On August 24, 2020, we completed concurrent offerings 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 and 41,071,429 shares of common stock which generated net proceeds of approximately $275 million. Dividends The Preferred Stock accumulates cumulative dividends at a rate per annum equal to 6.50% and 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. We recorded $2 million of accrued preferred stock dividends in our consolidated balance sheet as of 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. During the nine months ended September 30, 2020, we paid a quarterly cash dividend of $0.14 per share of our common stock totaling $39 million. On March 16, 2020, we announced the suspension of the payment of quarterly cash dividends on our common stock, effective with respect to the dividends occurring after the March 30, 2020 payment. Share Repurchase Program In February 2017, we announced the approval of the Share Repurchase Program to purchase up to $500 million of Sabre's common stock outstanding. Repurchases under the Share Repurchase Program may take place in the open market or privately negotiated transactions. For the nine months ended September 30, 2020, we did not repurchase any shares pursuant to the Share Repurchase Program. On March 16, 2020, we announced the suspension of share repurchases under the Share Repurchase Program in conjunction with the cash management measures we are undertaking as a result of the market conditions caused by COVID-19. Approximately $287 million remains authorized for repurchases under the Share Repurchase Program as of September 30, 2020. Cost Reduction Efforts Given the market conditions as the result of COVID-19, we have identified and are in the process of removing costs from the business in 2020. As part of these cost reduction efforts, we are implementing several immediate actions with regard to our workforce and other costs during this difficult business climate. See "—Recent Developments Affecting our Results of Operations" for further information. Senior Secured Credit Facilities On August 23, 2017, Sabre GLBL entered into a Fourth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement, Term Loan A Refinancing Amendment to our Amended and Restated Credit Agreement, and Second Revolving Facility Refinancing Amendment to our Amended and Restated Credit Agreement (the “2017 Refinancing”). The 2017 Refinancing included a $400 million Revolver as well as the application of the proceeds of the approximately $1,891 million incremental Term Loan B facility (“Term Loan B”) and $570 million Term Loan A facility (“Term Loan A”). The Revolver and the Term Loan A mature on July 1, 2022. The applicable margins for the Term Loan A and the Revolver were reduced to (i) between 2.50% and 1.75% per annum for Eurocurrency rate loans and (ii) between 1.50% and 0.75% per annum for base rate loans, in each case with the applicable margin for any quarter reduced by 25 basis points (up to 75 basis points total) if the Senior Secured First-Lien Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than 3.75 to 1.0, 3.00 48 to 1.0, or 2.25 to 1.0, respectively. Term Loan B matures on February 22, 2024. The applicable margins for the Term Loan B were reduced to 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate loans. On March 2, 2018, Sabre GLBL entered into a Fifth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement to refinance and modify the terms of the Term Loan B, resulting in a reduction of the applicable margins for the Term Loan B to 2.00% per annum for Eurocurrency rate loans and 1.00% per annum for base rate loans. We incurred no additional indebtedness as a result of this transaction. 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. Pursuant to Credit Agreement Amendments, effective July 18, 2016, the maximum leverage ratio has been adjusted to be based on the Total Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) and we are required, at all times (no longer solely when a threshold amount of revolving loans or letters of credit were outstanding), to maintain a Total Net Leverage Ratio of less than 4.5 to 1.0. Under the terms of the Amended and Restated Credit Agreement, the financial covenant related to our leverage ratio is suspended for a limited time if a “Material Travel Event Disruption” has occurred. As defined in the Amended and Restated Credit Agreement, a “Material Travel Event Disruption” means, in any given calendar month, a decrease of 10% or more in the number of “domestic revenue passenger enplanements” (determined by reference to the monthly “Air Traffic Statistics” published by the Bureau of Transportation Statistics) has occurred as a result of or in connection with a Travel Event (as defined in the Amended and Restated Credit Agreement) as compared to the number of “domestic revenue passenger enplanements” (determined by reference to the monthly “Air Traffic Statistics” published by the Bureau of Transportation Statistics) occurring in the corresponding month during the prior year or, if a Material Travel Event Disruption existed during such month, the most recent corresponding month in which no Material Travel Event Disruption occurred/existed. As of September 30, 2020, the recent capacity reductions by domestic airlines in response to the COVID-19 outbreak and related anticipated decreases in domestic passenger enplanements, and a recent sharp decline in GDS bookings, has led to a finding that a Material Travel Event Disruption has occurred. As such, the leverage ratio covenant has been suspended for at least the third and fourth quarters of 2020. We are also required to pay down the term loans by an amount equal to 50% of annual excess cash flow, as defined in the Amended and Restated Credit Agreement. This percentage requirement may decrease or be eliminated if certain leverage ratios are achieved. Based on our results for the year ended December 31, 2018, we were not required to make an excess cash flow payment in 2019, and no excess cash flow payment is required in 2020 with respect to our results for the year ended December 31, 2019. We are further required to pay down the term loan with proceeds from certain asset sales or borrowings as defined in the Amended and Restated Credit Agreement. Tax Receivable Agreement Immediately prior to the closing of our initial public offering in April 2014, we entered into the Tax Receivable Agreement (the "TRA"), which provides the right to receive future payments from us to stockholders and equity award holders that were our stockholders and equity award holders, respectively, immediately prior to the closing of our initial public offering (collectively, the “Pre-IPO Existing Stockholders”). In December 2019, we exercised our right under the terms of the TRA to accelerate our remaining payments under the TRA and make an early termination payment of $1 million, to the Pre-IPO Existing Shareholders, which was included in our January 2020 payment of $72 million. As a result, no future payments are required to be made to the Pre-IPO Existing Stockholders under the TRA. We made payments on the TRA, including interest, of $72 million and $105 million during the nine months ended September 30, 2020 and 2019, respectively. 49 Cash Flows Nine Months Ended September 30, 2020 2019 (Amounts in thousands) Cash (used in) provided by operating activities $ (587,069) $ 424,365 Cash used in investing activities (52,634) (108,482) Cash provided by (used in) financing activities 1,873,804 (351,424) Cash used in discontinued operations (3,739) (2,243) Effect of exchange rate changes on cash and cash equivalents 1,814 1,947 Increase (decrease) in cash and cash equivalents $ 1,232,176 $ (35,837) Operating Activities Cash used in operating activities for the nine months ended September 30, 2020 was $587 million and consisted of net loss from continuing operations of $963 million, offset by adjustments for non-cash and other items of $443 million, and a decrease in cash from changes in operating assets and liabilities of $67 million. The adjustments for non-cash and other items consist primarily of $279 million of depreciation and amortization, $58 million in allowance for credit losses, $57 million in amortization of upfront incentive consideration, $45 million stock-based compensation expense, $25 million in acquisition termination fees, a $14 million pension settlement charge, $13 million in amortization of debt discount and debt issuance costs, and a $10 million loss on debt extinguishment, partially offset by $67 million in deferred income taxes. The decrease in cash from changes in operating assets and liabilities of $67 million was primarily the result of a decrease of $264 million in accounts payable due to reductions in incentive fees due to the impact of COVID-19 on our volumes and the payment of the remaining $21 million associated with termination fees for the Farelogix transaction, $26 million used for upfront incentive fees due to agencies, and $11 million in capitalized implementation costs. These decreases were offset by a $182 million decrease in accounts receivable due to the impact of COVID-19 on our revenue and billings to customers, a $13 million decrease in other assets, an increase of $28 million in deferred revenue, and a $13 million increase in accrued compensation and related benefits. Cash provided by operating activities for the nine months ended September 30, 2019 was $424 million and consisted of net income from continuing operations of $152 million, adjustments for non-cash and other items of $415 million and a decrease in cash from changes in operating assets and liabilities of $143 million. The adjustments for non-cash and other items consist primarily of $312 million of depreciation and amortization, $60 million in amortization of upfront incentive consideration, $51 million stock-based compensation expense, $17 million in allowance for doubtful accounts, partially offset by $27 million in deferred income taxes. The decrease in cash from changes in operating assets and liabilities of $143 million was primarily the result of a $67 million increase in accounts receivable primarily due to seasonality, $65 million used for upfront incentive consideration, $26 million used for accrued compensation and related benefits, $20 million used for capitalized implementation costs, $9 million increase in other prepaid expenses and other current assets, and a $3 million decrease in deferred revenue. These decreases were partially offset by an increase of $35 million in accounts payable and other accrued liabilities due to seasonality in incentives and business growth, and a $13 million decrease in other assets. Investing Activities For the nine months ended September 30, 2020, we used cash of $48 million on capital expenditures, including $32 million related to software developed for internal use. For the nine months ended September 30, 2019, we used cash of $108 million in investing activities, including $70 million related to software developed for internal use. Additionally, we used cash of $16 million as an advance of purchase price to Farelogix for certain attorneys' fees. See "Liquidity Outlook" for additional information on the now-terminated Farelogix acquisition agreement. Financing Activities For the nine months ended September 30, 2020, financing activities provided $1,874 million. Significant highlights of our financing activities include: • proceeds from borrowings under the Notes of $1,970 million; • proceeds from issuance of stock of $598 million; • proceeds from borrowings under the Revolver of $375 million; • payment of $530 million on 5.375% senior secured notes due 2023; • payment of $365 million on Term Loan A and Term Loan B; • fourth and final annual payment on the TRA liability for $72 million, excluding interest; • payment of $54 million on debt issuance costs; • payment of $39 million in dividends on our common stock; 50 • net payments of $5 million from the settlement of employee stock-option awards, including payments of $5 million in income tax withholdings associated with the settlement of employee restricted-stock awards; and • payment of $5 million on our capital leases. For the nine months ended September 30, 2019, we used $351 million for financing activities. Significant highlights of our financing activities include: • payment of $115 million in dividends on our common stock; • annual payment on the TRA liability for $101 million, excluding interest; • payment of $45 million on our revolving credit facility and $43 million on our Term Loan A and Term Loan B; • proceeds of $45 million from borrowings under our Revolver; • repurchase of 3,673,768 shares of our common stock outstanding totaling $78 million; and • net payments of $6 million from the settlement of employee stock-based awards, including $7 million in proceeds from the exercise of employee stock options, net of payments for $13 million in income tax withholdings associated with the settlement of employee stock-based awards. Contractual Obligations On August 3, 2020, we extended our contract with DXC Technology to help reduce the fixed portion of our technology costs. Under this extended contract, we are committed to contract minimums totaling approximately $560 million between the years 2021 and 2030 in addition to the amounts previously disclosed in our Annual Report on Form 10-K as filed with the SEC on February 26, 2020. There were no material changes to our future minimum contractual obligations since December 31, 2019 as previously disclosed in our Annual Report on Form 10-K filed with the SEC on February 26, 2020 other than the contract extension described herein and our debt obligations discussed in Note 7. Debt to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q. Off Balance Sheet Arrangements We had no off balance sheet arrangements during the nine months ended September 30, 2020 and year ended December 31, 2019. Recent Accounting Pronouncements Information related to Recent Accounting Pronouncements is included in Note 1. General Information, to our consolidated financial statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q, which is incorporated herein by reference. Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses and other financial information. Actual results may differ significantly from these estimates, and our reported financial condition and results of operations could vary under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard. We regard an accounting estimate underlying our financial statements as a “critical accounting estimate” if the accounting estimate requires us to make assumptions about matters that are uncertain at the time of estimation and if changes in the estimate are reasonably likely to occur and could have a material effect on the presentation of financial condition, changes in financial condition, or results of operations. For a discussion of the accounting policies involving material estimates and assumptions that we believe are most critical to the preparation of our financial statements, how we apply such policies and how results differing from our estimates and assumptions would affect the amounts presented in our financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. Since the date of the annual report on Form 10-K filed with the SEC on February 26, 2020, there have been no material changes to our critical accounting estimates other than to update the critical accounting estimate disclosures for our allowance for credit losses to align with the adoption of Accounting Standards Codification ("ASC") 326, Credit Impairment. Allowance for Credit Losses We develop and document our methodology used in determining the allowance for credit losses at the portfolio segment level. Within the travel portfolio segment, we identify airlines, hoteliers and travel agencies as each presenting unique risk characteristics associated with historical credit loss patterns unique to each and we determine the adequacy of our allowance for credit loss by assessing the risks and losses inherent in our receivables related to each. 51 We evaluate the collectability of our receivables based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, such as bankruptcy filings or failure to pay amounts due to us or others, we specifically reserve for bad debts against amounts due to reduce the recorded receivable to the amount we reasonably believe will be collected. For all other customers, we record reserves for receivables, including unbilled receivables and contract assets, based on historical experience and the length of time the receivables are past due. The estimate of credit losses is developed by analyzing historical twelve-month collection rates and adjusting for current customer-specific factors indicating financial instability and other macroeconomic factors that correlate with the expected collectability of our receivables. Receivables are considered to be delinquent when contractual payment terms are exceeded. All receivables aged over twelve months are fully reserved. Receivables are written off against the allowance when it is probable that all remaining contractual payments will not be collected as evidenced by factors such as the extended age of the balance, the exhaustion of collection efforts, and the lack of ongoing contact or billing with the customer. See Note 6. Credit Losses for further considerations involved in the development of this estimate.