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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-26 · 508 added, 308 removed, 279 unchanged (75% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

For a comparison of our Results of Operations for the years ended December 31, 2018 and 2017 and our Cash Flow discussion for the year ended December 31, 2017, see "Part II, Item 7.

Management's Discussion and Analysis of Financial Conditions and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on February 15, 2019.

The following discussion and analysis has been recast to reflect the Strategic Realignment described in this Form 10-K and should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

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

We operate through three business segments:

(i) Travel Network, our global business-to-business travel marketplace for travel suppliers and travel buyers, (ii) Airline Solutions, a broad portfolio of software technology products and solutions primarily for airlines, and (iii) Hospitality Solutions, an extensive suite of leading software solutions for hoteliers.

Collectively, these offerings enable travel suppliers to better serve their customers across the entire travel lifecycle, from route planning to post-trip business intelligence and analytics.

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, in 2020 we accelerated the organizational changes we began in 2018 to address the changing travel landscape through the Strategic Realignment 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 the Strategic Realignment, we now operate our business and present our results through two business segments effective the third quarter of 2020:

(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.

The historical results of the Hospitality Solutions reporting segment have not changed.

Segment Information, to our consolidated financial statements for results for the years ended December 31, 2020, 2019 and 2018 by reportable segment.

A significant portion of our revenue is generated through transaction-based fees that we charge to our customers.

For Travel Network, this fee is in the form of a transaction fee for bookings on our GDS;

for Airline Solutions and Hospitality Solutions, this fee is a recurring usage-based fee for the use of our SaaS and hosted systems, as well as upfront fees and professional service fees.

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

For Travel Solutions, we generate revenue from our distribution activities through transaction fees for bookings on our GDS, and from our IT solutions through recurring usage-based fees for the use of our 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.

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.

Summary of Business and Significant Accounting Policies, to our consolidated financial statements for further information.

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) in January 2020, especially as it relates to air travel to and from Asia.

We expect a material impact to our consolidated financial results in the first quarter of 2020.

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;

however, we expect the impact will be material.

In 2019, we substantially completed our transition to utilizing the agile development methodology.

This method is characterized by a more dynamic development process with iterative activities that involve planning, designing, coding and testing.

The agile approach results in more frequent and incremental revisions to software and releases with shorter development cycles that may be less likely to meet the criteria for capitalization in accordance with generally accepted accounting principles in the United States (“GAAP”).

In addition, we continue to focus our resources on re-platforming efforts as we continue to move to open source and cloud-based solutions.

As expected, these continued investments have reduced our capitalization of certain costs, with a corresponding increase in technology operating expenses.

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

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

Our revenue was negatively impacted in 2019, and this negative impact will continue in 2020.

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

We expect this trend to persist into 2020.

In addition, our revenue was negatively impacted in 2019 from the effects of the 737 MAX incident on one particular carrier, and we expect this negative impact will continue in 2020.

Finally, for Airline Solutions, Pakistan International Airlines Corporation, Bangkok Airways Public Company Limited, and Philippine Airlines, Inc.

(the "Transitioned Customers"), previously made decisions in 2018 to transition from our services, which will dilute our growth rates on a year-over-year basis.

Pakistan International Airlines, Philippine Airlines, and Bangkok Airways Public Company Limited transitioned in September 2018, March 2019, and August 2019, respectively.

On October 15, 2019, we acquired Radixx, a leading airline retailing software provider for $110 million, utilizing cash on hand.

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

We announced on November 14, 2018 that we have entered into an agreement to purchase Farelogix, a travel industry innovator in the airline information technology and distribution landscape for $360 million, which will be funded at closing by cash on hand and borrowings under our Revolver.

On August 20, 2019, the DOJ filed a complaint seeking a permanent injunction to prevent the acquisition.

The trial concluded on February 6, 2020 and the trial court has not yet issued its decision.

In addition, the CMA has referred its review of the acquisition for a Phase 2 investigation and has published its provisional findings of competition concerns.

Legal Proceedings .

There can be no assurance that the acquisition will occur on these terms or at all.

We have incurred and expect to continue to incur significant fees associated with this acquisition, including for the items discussed above, which are included in general and administrative expense.

In the first quarter of 2018, we adopted the comprehensive update to revenue recognition guidance for Revenue from Contracts with Customers ("ASC 606"), which replaced the previous standard ("ASC 605"), using the modified retrospective approach.

Under the updated standard, revenue is recognized when a company transfers the promised goods or services to customers in an amount that reflects the consideration that is expected to be received for those goods and services.

Revenue from Contracts with Customers, to our consolidated financial statements for more information on impacts of ASC 606 to our various streams of revenue recognition.

During the year ended December 31, 2018, we recorded final adjustments to our provisional amounts recognized related to the TCJA, resulting in a decrease in our provision for income taxes from continuing operations of $27 million for deferred tax assets and foreign tax effects (see Note 7.

Income Taxes, to our consolidated financial statements).

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

COVID-19 has had a material impact to our consolidated financial results in 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 during the year, particularly in the second quarter, was negatively impacted by increased cancellation activity.

We estimate future cancellations at the end of each reporting period based on the number of undeparted bookings, expected cancellations and an estimated rate.

The combination of actual cancellation activity and significantly fewer bookings resulted in a reduction in the cancellation reserve for the year ended December 31, 2020 when compared to 2019.

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

Refer to Note 8.

Credit Losses for further information.

Given the impact of COVID-19, as previously disclosed, we have responded with measures to increase our cash position, including the suspension of common stock dividends and share repurchases under our $500 million share repurchase program (the "Share Repurchase Program"), borrowing under our Revolver, implementing cost savings measures, and completing debt and equity offerings.

Additionally, during the fourth quarter of 2020, we completed the sale of our two headquarters buildings for an aggregate purchase price, net of closing costs, of $69 million in conjunction with an assessment of our real estate footprint, as well as our work from anywhere initiatives.

Leases, to our consolidated financial statements for further information.

We also took the following actions with regard to our workforce and compensation programs as 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 through December 31, 2020;

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

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

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

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

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

We substantially completed the Strategic Realignment during the year ended December 31, 2020.

In connection with these measures, we recorded a $72 million charge associated with these restructuring activities during the year ended December 31, 2020.

Restructuring Activities, to our consolidated financial statements 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 have impacted 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, paid 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 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;

• 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.

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.

We did not participate in the CARES Act loan program during 2020 but did benefit from certain payroll-tax related deferrals and credits.

The provisions of the CARES Act did not have a material impact on our consolidated financial statements for the year ended December 31, 2020.

During the year ended December 31, 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

The following is a discussion of trends that we believe are the most significant opportunities and challenges currently impacting our business and industry.

The impacts of COVID-19 on our business as described above are the most significant factors affecting our current results, and they are expected to continue to significantly impact our future results.

The following is a discussion of other trends that we believe are additional significant opportunities and challenges currently impacting our business and industry.

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 elsewhere in this Annual Report on Form 10-K.

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 ,” “ Forward-Looking Statements ,” and "—Recent Developments Affecting our Results of Operations" included elsewhere in this Annual Report on Form 10-K.

Technology transformation and change in mix of technology spend

We expect to further enable our technology transformation with incremental investments of approximately $150 million in 2020 and continued investment over the next few years which will have a material impact on our financial results.

We expect to continue to make significant investments in our re-platforming efforts to open source and cloud-based solutions, as previously disclosed, with the goal of modernizing our architecture, driving efficiency in development and ongoing technology costs, further enhancing the stability and security of our network, and complying with data privacy regulations, and in next-generation retailing capabilities, including NDC and personalized offers, LCC, and full-service hotel PMS offerings.

We expect to further enable our technology transformation with incremental operational and capital expenditure investments in 2021 and continued investment over the next few years which will have a material impact on our financial results.

In 2021, we expect total capital expenditures to range from $60 million to $100 million.

Upon completion of our technology transformation in 2024, we expect to benefit from lower cloud infrastructure costs and higher margins.

We believe that continued investment in our technology will help to provide us the necessary framework and infrastructure for a secure and stable architecture for our customers, grow our addressable market, provide new revenue opportunities, reduce costs and will help to improve sales of our software solutions.

Technology costs include the cost of our technology transformation.

Through our technology transformation efforts, we expect to benefit from lower cloud infrastructure costs and higher margins, with material cost savings realized beginning in 2024.

We believe that continued investment in our technology will help to provide us the necessary framework and infrastructure for a secure and stable architecture for our customers, grow our

addressable market, provide new revenue opportunities, reduce costs and will help to improve sales of our software solutions.

However, there are various risks associated with our technology transformation efforts, including not achieving the amount of anticipated cost savings, not completing the steps during their current projected time frame, or changing the approach leading to, among other things, additional changes in our mix of technology spend between operating expense and capitalization.

Geographic mix of travel bookings

The revenue recognized by our Travel Solutions business is affected by the mix between domestic and international travel reservation bookings and the related varying rates paid by airline suppliers.

As a result of the COVID-19 pandemic, our mix of transactions shifted during 2020 such that domestic bookings now exceed international bookings, negatively impacting our revenue.

The increase in domestic bookings is also partly due to an increase in leisure bookings over business travel.

As business travelers have moved to a remote working environment with travel restrictions, leisure travel has increased impacting the domestic and international mix further.

Due to our geographic concentration, our results of operations are particularly sensitive to factors affecting North America, which has been accentuated by the impacts of COVID-19.

For example, booking fees per transaction in North America have traditionally been lower than those in Europe.

As we continue to invest in our technology and expand the travel content and functionality available in our GDS, we anticipate that we will continue to grow global market share.

Booking share in the near term, however, could be impacted by the regional mix of travel bookings during recovery from COVID-19.

We invest for sustainable share growth, and in certain parts of Asia-Pacific and Latin America, our share may be impacted by travel agency commercial arrangements we have declined to pursue due to credit risk and unfavorable economics.

The geographic mix of our Direct Billable Bookings is summarized below:

Year Ended December 31,

Direct Billable Bookings (1) :

North America 64 % 55 %

APAC 10 % 20 %

EMEA 17 % 16 %

Latin America 9 % 9 %

Total 100 % 100 %

________________________________________________________________________________________

(1) “Direct Billable Bookings” is the primary metric utilized by Travel Solutions to measure operating performance and includes bookings made through our GDS and through our joint venture partners in cases where we are paid directly by the travel supplier.

Recent insolvencies and the impact of COVID-19 on Travel Solutions customers

In 2020, several Travel Solutions customers filed for bankruptcy but continued to operate.

In April 2019, a customer of Travel Solutions, Jet Airways suspended flight operations and is now insolvent which negatively impacted our revenue in 2019 and 2020.

Additionally, given the uncertainties surrounding the duration and effects of COVID-19 on transaction volumes in the global travel industry, particularly air travel and hotel transaction volumes, including from airlines’ insolvency or suspension of service or aircraft groundings, our provision for expected credit losses increased in 2020 partially due to fully reserving for aged balances related to certain customers and bankruptcy-related reserves.

In the future, we may incur additional credit losses if further bankruptcies occur or our customers lack the ability to pay for services performed.

Additionally, bankruptcy proceedings may require the renegotiation of contractual terms that may not be favorable.

Our revenue has and may continue to be impacted by contracting with our customers, including force majeure provisions and requests to renegotiate the terms of existing agreements prior to their expiration, including providing temporary concessions on contractual minimums.

Future revenues may be negatively impacted by, among other things, reduced sales of our software solutions and reduced Passengers Boarded due to delayed or uncertain implementations and insolvencies of airline carriers.

See “ Risk Factors —Our travel supplier customers may experience financial instability or consolidation, pursue cost reductions, change their distribution model or undergo other changes.”

Increasing travel agency incentive consideration

Travel agency incentive consideration is a large portion of Travel Network expenses.

Travel agency incentive consideration is a large portion of Travel Solutions expenses.

The vast majority of incentive consideration is tied to absolute booking volumes based on transactions such as flight segments booked.

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(i) on a periodic basis over the term of the contract and (ii) in some instances, up front at the inception or modification of contracts, which is capitalized and amortized over the expected life of the contract.

This consideration grew in the double digits on a per booking basis in 2017 and 2018 due to higher incentives in certain geographical markets and from new customer conversions and reverted to single-digit growth in 2019.

We expect continued single-digit growth in the near term due to our focus on managing incentive consideration.

Although incentive rate increases may continue to impact margins, we expect these increases to be more than offset by growth in Travel Network revenue.

This expectation is based in part on our continuing to offer value added services and content to travel buyers, such as the Sabre Red Workspace, a SaaS product that provides a simplified interface and enhanced travel agency workflow and productivity tools.

This consideration grew in the double digits on a per booking basis in 2018 due to higher incentives in certain geographical markets and from new customer conversions and reverted to single-digit growth in 2019.

Consideration on a per booking basis declined in 2020 as compared to the prior year due the COVID-19 pandemic;

however, we remain focused on managing incentive consideration and expect continued single-digit growth in the near term.

Although incentive rate increases may continue to impact margins, we expect these increases to be more than offset by growth in Travel Solutions revenue.

expectation is based in part on our continuing to offer value added services and content to travel buyers, such as the Sabre Red Workspace, a SaaS product that provides a simplified interface and enhanced travel agency workflow and productivity tools.

Travel buyers can shift their bookings to or from our Travel Solutions business

Our Travel Solutions business relies on relationships with several large travel buyers, including TMCs and OTAs, to drive a large portion of its revenue.

Although our contracts with larger travel agencies often increase the amount of the incentive consideration when the travel agency processes a certain volume or percentage of its bookings through our GDS, travel buyers are not contractually required to book exclusively through our GDS during the contract term.

Travel buyers may shift bookings to other distribution intermediaries for many reasons, including to avoid becoming overly dependent on a single source of travel content and increase their bargaining power with the GDS providers.

For example, certain travel agencies have adopted a dual GDS provider strategy and shifted a sizeable portion of their business from our GDS to a competitor GDS, while other agencies have shifted a sizable portion their business to our GDS.

Additionally, the impact of COVID-19 on travel buyers has caused them, and may continue to cause them, to select the GDS with the most favorable terms or contractual commitment.

Increasing importance of LCC/hybrids

LCC/hybrids have become a significant segment of the air travel market, stimulating demand for air travel through low fares.

LCC/hybrids have traditionally relied on direct distribution for the majority of their bookings.

However, as these LCC/hybrids are evolving, many are increasing their distribution through indirect channels to expand their offering into higher yield markets and to higher yield customers, such as business and international travelers.

Other LCC/hybrids, especially start up carriers, may choose not to distribute through the GDS until wider distribution is desired.

On October 15, 2019, we acquired Radixx, an airline retailing software provider whose signature products are an LCC passenger service system and internet booking engine.

We have invested in Radixx to expand its capabilities and expect to make additional investments to address the LCC space and continue to grow upmarket with a more competitive offering.

Shift to SaaS and hosted solutions by airlines and hotels to manage their daily operations

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We believe that significant revenue opportunity remains in this outsourcing trend, as legacy in-house systems continue to migrate and upgrade to third party systems;

however, the impact of COVID-19 on the travel industry may cause delays in these decisions, which may impact new sales during the pandemic and recovery period.

The shift from a model with initial license fees to one with recurring monthly fees associated with our SaaS and hosted solutions, has resulted in an ongoing revenue stream based on the number of passengers boarded.

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The SaaS and hosted models’ centralized deployment also allows us to save time and money by reducing maintenance and implementation tasks and lowering operating costs.

Recent insolvencies of certain Airline Solutions customers

In April 2019, a customer of Travel Network and Airline Solutions, Jet Airways suspended flight operations and is now in insolvency proceedings.

Our revenue was negatively impacted in 2019 which will continue in 2020.

In addition, future revenues may be negatively impacted by, among other things, reduced sales of our software solutions and lower growth in Passengers Boarded due to delayed or uncertain implementations and insolvencies of airline carriers, such as Alitalia Compagnia Aerea Italiana S.p.A.

operating as Alitalia (“Alitalia”), that implemented our services in the fourth quarter of

See “ Risk Factors —Our travel supplier customers may experience financial instability or consolidation, pursue cost reductions, change their distribution model or undergo other changes.”

Growing demand for continued technology improvements in the fragmented hotel market

Most of the hotel market is highly fragmented.

Most of the hospitality industry is highly fragmented.

Independent hotels and small to medium sized chains (groups of less than 300 properties) comprise a majority of hotel properties and available hotel rooms, with global and regional chains comprising the balance.

Hotels use a number of different technology systems to distribute and market their products and operate efficiently.

We offer technology solutions to all segments of the hospitality market.

Our SynXis Enterprise Platform integrates critical hospitality systems to optimize distribution, operations, retailing and guest experience via one scalable, flexible and intelligent platform.

As these markets continue to grow, we believe both independent and enterprise hotel owners and operators will continue to seek increased connectivity and integrated solutions to ensure access to global travelers.

We offer technology solutions to all segments of the hospitality industry.

Our SynXis Central Reservation System integrates critical hospitality systems to optimize distribution, operations, retailing and guest experience via one scalable, flexible and intelligent platform.

We believe the impact of COVID-19 on the hospitality industry highlights the benefits of a scalable solution such as our SynXis Central Reservation System.

As these markets recover and begin to grow, we believe both independent and enterprise hotel owners and operators will continue to seek increased connectivity and integrated solutions to ensure access to global travelers.

We anticipate that this will contribute to the continued growth of Hospitality Solutions, which is ultimately dependent upon these hoteliers accepting and utilizing our products and services.

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This has resulted, and may continue to result, in customer de-migration as larger hotel chains consolidate acquired brands onto their existing technology platforms.

Certain of our Hospitality Solutions customers are in the process of being acquired by larger hoteliers, and it is possible that additional customer consolidations could occur in the future.

Certain of our Hospitality Solutions customers were acquired by larger hoteliers, and it is possible that additional customer consolidations could occur in the future.

We expect these consolidations to adversely impact revenue growth for the Hospitality Solutions business.

Geographic mix of Travel Network

There are structural differences between the geographies in which we operate.

Due to our geographic concentration, our results of operations are particularly sensitive to factors affecting North America.

For example, booking fees per transaction in North America have traditionally been lower than those in Europe.

By growing internationally with our TMCs and OTAs customers and expanding the travel content available on our GDS to target regional traveler preferences, we anticipate that we will grow share in North America, Europe and Latin America.

We invest for sustainable share growth, and in certain parts of Asia-Pacific and Latin America, our share may be impacted by travel agency deals we have declined to pursue due to credit risk and unfavorable economics.

The geographic mix of our Direct Billable Bookings is summarized below:

Year Ended December 31,

Direct Billable Bookings (1) :

North America 55 % 53 %

APAC 20 % 21 %

EMEA 16 % 17 %

Latin America 9 % 9 %

Total 100 % 100 %

________________________________________________________________________________________

(1) “Direct Billable Bookings” is the primary metric utilized by Travel Network to measure operating performance and includes bookings made through our GDS and through our joint venture partners in cases where we are paid directly by the travel supplier.

Travel buyers can shift their bookings to or from our Travel Network business

Our Travel Network business relies on relationships with several large travel buyers, including TMCs and OTAs, to drive a large portion of its revenue.

Increasing importance of LCC/hybrids

Low-cost carriers and hybrid carriers ("LCC/hybrids") have become a significant segment of the air travel market, stimulating demand for air travel through low fares.

LCC/hybrids have traditionally relied on direct distribution for the majority of their bookings.

Other LCC/hybrids, especially start up carriers, may choose not to distribute through the GDS until wider distribution is desired.

On October 15, 2019, we acquired Radixx, an airline retailing software provider whose signature products are a LCC passenger service system and internet booking engine.

We expect to make additional investments to address the LCC space.

Continued focus by travel suppliers on cost cutting and exerting influence over distribution

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The shift from indirect distribution channels, such as our GDS, to direct distribution channels, may result from increased content availability on supplier operated websites or from increased participation of meta search engines, such as Kayak and Google, which direct consumers to supplier operated websites.

This trend may adversely affect our Travel Network contract renegotiations with suppliers that use alternative distribution channels.

For example, airlines may withhold part of their content for distribution exclusively through their own direct distribution channels or offer more attractive terms for content available through those direct channels.

This trend may adversely affect our Travel Solutions contract renegotiations with suppliers that use alternative distribution channels.

For example, airlines may withhold part of their content for distribution exclusively through their own direct distribution channels or offer more attractive terms for content

available through those direct channels.

This occurred in 2018 when certain European carriers began to withhold part of their content from our GDS to make use of alternative distribution channels, which may adversely affect our future revenue growth.

In 2020, we reached an agreement with one such carrier to provide traditional content while enabling content via NDC.

However, in North America, which is our largest region, the rate at which bookings have shifted from indirect to direct distribution channels has been relatively consistent for a number of reasons, including the increased participation of LCC/hybrids in direct channels.

Over the last several years, notable carriers that previously only distributed directly, including JetBlue, Norwegian and Interjet, have adopted our GDS.

Other carriers such as EVA Airways, and Virgin Australia have further increased their participation in a GDS.

Conversely, Air India, Ltd.

fully migrated from our GDS during 2019.

These trends have impacted the revenue of Travel Network, which recognizes revenue for airline ticket sales based on transaction volumes.

Simultaneously, this focus on cost cutting and direct distribution has also presented opportunities for Airline Solutions.

Over the last few years, notable carriers that previously only distributed directly, including Lion Air, Norwegian and Interjet, have signed agreements with our GDS.

In addition, we signed a number of smaller airlines to new participation agreements in 2020, such as Fly Gangwon, Jazeera Airways and Thai Smile Airways.

Other carriers such as Southwest Airlines and EVA Airways have further increased their participation in our GDS.

Conversely, Air India fully migrated from our GDS during 2019.

These trends have impacted the revenue of Travel Solutions, which recognizes revenue for airline ticket sales based on transaction volumes.

Simultaneously, this focus on cost cutting and direct distribution has also presented opportunities for Travel Solutions.

Many airlines have turned to outside providers for key systems, process and industry expertise and other products that assist in their cost cutting initiatives in order to focus on their primary revenue generating activities.

Components of Revenues and Expenses

Travel Network primarily generates revenues from Direct Billable Bookings processed on our GDS as well as the sale of aggregated bookings data to carriers.

Airline Solutions and Hospitality Solutions primarily generate revenue through upfront solution fees and recurring usage-based fees for the use of our software solutions hosted on secure platforms or deployed through our SaaS and through other professional service fees including Digital Experience ("DX").

Certain professional service fees are discrete sales opportunities that may have a high degree of variability from period to period, and we cannot guarantee that we will have such fees in the future consistent with prior periods.

Airline Solutions also generates revenue through software licensing and maintenance fees.

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.

Additionally, Travel Solutions 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.

In connection with the adoption of ASC 606 effective January 1, 2018, Airline Solutions license fees are recognized upon delivery, while ongoing maintenance services are recognized ratably over the life of the contract.

In addition, the allocation of contract revenues among various products and solutions, and the timing of the recognition of those revenues, may be impacted by agreements with tiered pricing or variable rate structures that do not correspond with the goods or services delivered to the customer.

Revenue from Contracts with Customers, to our consolidated financial statements, and "—Recent Developments Affecting our Results of Operations" above.

Revenue may occasionally include amounts from transactions that were partially or fully satisfied in previous periods, but recognized upon the resolution of an uncertainty regarding the amounts involved or changes in estimates.

Cost of revenue

Cost of revenue incurred by Travel Network, Airline Solutions and Hospitality Solutions consists of expenses related to technology operations including hosting, third-party software and expensed research and development labor costs, other salaries and benefits, and allocated overhead such as facilities and other support costs.

Cost of revenue for Travel Network also includes incentive consideration expense representing payments or other consideration to travel agencies for reservations made on our GDS which accrue on a monthly basis.

Corporate cost of revenue includes expenses associated with our technology organization such as corporate systems and risk and security.

Corporate cost of revenue also includes certain expenses such as stock-based compensation, restructuring charges, legal reserves and other items not identifiable with one of our segments.

Depreciation and amortization included in cost of revenue is associated with property and equipment, amortization of capitalized implementation costs which relates to Airline Solutions and Hospitality Solutions, intangible assets for technology purchased through acquisitions or established with our take private transaction in 2007, and software developed for internal use that supports our revenue, businesses and systems.

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").

Cost of revenue, excluding technology costs

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.

Cost of revenue excludes technology costs, which are presented separately below.

Corporate cost of revenue includes certain expenses such as stock-based compensation, 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 transaction 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 and to reflect the Strategic Realignment.

For the years ended December 31, 2019 and 2018, we reclassified $1,179 million and $997 million, respectively, from cost of revenue to technology costs and $130 million and $140 million, respectively, from cost of revenue to selling, general, and administrative.

As a result, cost of revenue decreased by $1,309 million and $1,137 million for the years ended December 31, 2019 and 2018 respectively.

Technology Costs

Technology costs incurred by Travel Solutions and Hospitality Solutions consist of expenses related to third-party providers and employee-related costs to operate technology operations including hosting, third-party software, and other costs associated with the maintenance and minor enhancement of our technology.

Technology costs also include costs associated with our technology transformation efforts.

Technology costs are less variable in nature and therefore may not correlate with related changes in revenue.

Depreciation and amortization included in technology costs is associated with software developed for internal use that supports our products, assets supporting our technology platform, businesses and systems and intangible assets for technology 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 by separately reporting technology costs.

For the year ended December 31, 2019, we reclassified $1,179 million from cost of revenue and $106 million from selling, general and administrative to technology costs.

For the year ended December 31, 2018, we reclassified $997 million from cost of revenue and $102 million from selling, general and administrative to technology costs.

Selling, General and Administrative Expenses

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

Selling, general and administrative expenses consist of 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 and to reflect the Strategic Realignment.

For the years ended December 31, 2019 and 2018, we reclassified $130 million and $140 million, respectively, from cost of revenue to selling, general, and administrative and $106 million and $102 million, respectively, from selling, general and administrative to technology costs.

As a result, selling, general and administrative expenses increased by $24 million and $38 million for the years ended December 31, 2019 and 2018, respectively.

Intersegment Transactions

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

Airline Solutions and Hospitality Solutions pay fees to Travel Network for airline trips and hotel stays booked through our GDS.

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

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

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

The primary metric utilized by Hospitality Solutions is booking transactions processed through the SynXis Central Reservations System.

These key metrics allow management to analyze customer volume over time for each of our three business segments to monitor industry trends and analyze performance.

Hospitality Solutions pays fees to Travel Solutions for hotel stays booked through our GDS.

“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 includes 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.

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.

These key metrics allow management to analyze customer volume over time for each of our product lines 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.

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2020 2019 2018 2020 2019

Travel Network

Travel Solutions

Direct Billable Bookings - Air 103,331 499,111 491,820 (79.3) % 1.5 %

Direct Billable Bookings - LGS 21,353 67,197 66,454 (68.2) % 1.1 %

Total Direct Billable Bookings 566,308 558,274 524,824 1.4 % 6.4 %

Airline Solutions Passengers Boarded 741,107 752,548 772,149 (1.5) % (2.5) %

Hospitality Solutions Central Reservations System Transactions 108,482 88,655 N/A 22.4 % N/A

Distribution Total Direct Billable Bookings 124,684 566,308 558,274 (78.0) % 1.4 %

IT Solutions Passengers Boarded 322,714 741,107 752,548 (56.5) % (1.5) %

Hospitality Solutions

Central Reservations System Transactions 67,046 108,482 88,655 (38.2) % 22.4 %

Results of Operations

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Revenue $ 1,334,100 $ 3,974,988 $ 3,866,956

Cost of revenue 3,035,003 2,791,414 2,513,857

Cost of revenue, excluding technology costs 579,010 1,726,157 1,654,376

Technology costs 1,156,723 1,285,204 1,098,641

Selling, general and administrative 586,406 600,210 551,923

Impairment and related charges — — 81,112

Operating income 363,417 562,016 493,440

Operating (loss) income (988,039) 363,417 562,016

Interest expense, net (235,091) (156,391) (157,017)

Loss on debt extinguishment (21,626) — (633)

Equity method (loss) income (2,528) 2,044 2,556

Other expense, net (66,961) (9,432) (8,509)

(Loss) income from continuing operations before income taxes (1,314,245) 199,638 398,413

Provision for income taxes (39,913) 35,326 57,492

(Loss) Income from continuing operations $ (1,274,332) $ 164,312 $ 340,921

Years Ended December 31, 2020 and 2019

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Travel Solutions $ 1,176,694 $ 3,723,000 $ (2,546,306) (68) %

Hospitality Solutions 174,628 292,880 (118,252) (40) %

Total segment revenue 1,351,322 4,015,880 (2,664,558) (66) %

Eliminations (17,222) (40,892) 23,670 (58) %

Total revenue $ 1,334,100 $ 3,974,988 $ (2,640,888) (66) %

Travel Solutions —Revenue decreased $2,546 million, or 68%, for the year ended December 31, 2020 compared to the prior year, primarily due to:

• a $2,149 million, or 79%, decrease in transaction-based distribution revenue due to a 78% decrease in Direct Billable Bookings to 125 million resulting from lower transaction volume primarily as a result of reduced travel caused by the COVID-19 pandemic;

• a $397 million decrease in IT solutions revenue consisting of a $265 million, or 52%, 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, 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 323 million for the year ended December 31, 2020.

Additionally, commercial and operations revenue decreased $132 million primarily due to the impact of the COVID-19 pandemic on our existing customer base.

Hospitality Solutions —Revenue decreased $118 million, or 40%, for the year ended December 31, 2020 compared to 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 67 million, as a result of the COVID-19 pandemic.

Cost of Revenue, excluding technology costs

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Travel Solutions $ 363,623 $ 1,483,154 $ (1,119,531) (75) %

Hospitality Solutions 91,149 153,162 (62,013) (40) %

Eliminations (17,222) (40,879) 23,657 (58) %

Total segment cost of revenue, excluding technology costs 437,550 1,595,437 (1,157,887) (73) %

Corporate 27,867 8,094 19,773 244 %

Depreciation and amortization 38,916 39,691 (775) (2) %

Amortization of upfront incentive consideration 74,677 82,935 (8,258) (10) %

Total cost of revenue, excluding technology costs $ 579,010 $ 1,726,157 $ (1,147,147) (66) %

Travel Solutions —Cost of revenue decreased $1,120 million, or 75%, for the year ended December 31, 2020 compared to the prior year.

The decrease was primarily the result of a $1,078 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 $37 million reduction in labor and professional services costs in connection with our cost reduction measures.

Hospitality Solutions —Cost of revenue decreased $62 million, or 40%, for the year ended December 31, 2020 compared to the prior year.

The decrease was primarily driven by $55 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 labor costs in connection with our cost reduction measures.

Corporate —Cost of revenue associated with corporate costs increased $20 million, or 244%, for the year ended December 31, 2020 compared to the prior year.

This increase was primarily due to a restructuring charge of $19 million for severance benefits.

The increase is partially offset by a reduction in labor costs in connection with our cost reduction measures.

Restructuring Activities, to our consolidated financial statements for further details on restructuring activities.

Depreciation and amortization —Depreciation and amortization decreased $1 million, or 2%, for the year ended December 31, 2020 compared to the prior year.

The decrease is primarily due to customer implementations that became fully amortized during the year.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased $8 million, or 10%, for the year ended December 31, 2020 compared to the prior year.

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

Technology Costs

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Technology Costs $ 1,156,723 $ 1,285,204 $ (128,481) (10) %

Technology costs decreased by $128 million, or 10%, for the year ended December 31, 2020 compared to the prior year.

The decrease is primarily driven by reductions impacting our Travel Solutions and Hospitality Solutions businesses, including a decrease in technology labor of $91 million and $12 million, respectively, in connection with our cost reduction measures, a decrease in depreciation and amortization of $46 million and $10 million, respectively, primarily due to a change in the mix of our technology spend in 2019 resulting in less capitalized internal use software, and a decline in technology costs of $55 million in our Travel Solutions business associated with lower transaction volumes resulting from the COVID-19 pandemic.

This decrease is partially offset by a continued decline in the capitalization mix of our technology spend as we implement opensource and cloud-based solutions, resulting in an increase in labor costs of $40 million and $6 million in our Travel Solutions and Hospitality Solutions businesses, respectively.

Corporate technology costs increased due to a restructuring charge of $32 million for severance benefits.

Restructuring Activities, to our consolidated financial statements for further details on restructuring activities.

Selling, General and Administrative Expenses

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Selling, general and administrative $ 586,406 $ 600,210 $ (13,804) (2) %

Selling, general and administrative expenses decreased $14 million, or 2%, for the year ended December 31, 2020 compared to the prior year.

The decrease is primarily driven by a decrease in labor and professional services costs of $43 million and $3 million in our Travel Solutions and Hospitality Solutions businesses, respectively, and a $29 million decrease in Corporate labor and professional services, each in connection with our cost reduction measures.

In addition, other costs declined by approximately $25 million across the company from 2019 primarily in conjunction with our expense management initiatives.

Corporate selling, general and administrative costs also declined due to a $27 million decrease in legal costs associated with the now-terminated acquisition of Farelogix.

These decreases are substantially offset by an increase in the provision for expected credit losses of $38 million and $8 million in our Travel Solutions and Hospitality Solutions businesses, respectively, 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.

Corporate related selling, general and administrative expenses increased as a result of a $20 million charge for severance benefits recorded in the current year, a $14 million abandonment charge associated with the closure of certain office locations in connection with our restructuring activities 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.

Restructuring Activities, to our consolidated financial statements for further details on restructuring activities.

Interest expense, net

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Interest expense, net $ 235,091 $ 156,391 $ 78,700 50 %

Interest expense increased $79 million, or 50%, for the year ended December 31, 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.

Debt for further details these debt transactions .

Loss on Extinguishment of Debt

Joint venture equity income 2,044 2,556 2,580

Other income, net (9,432) (8,509) 36,530

Income from continuing operations before income taxes 199,638 398,413 377,613

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Loss on extinguishment of debt $ 21,626 $ — $ 21,626 **

** not meaningful

As a result of the debt refinancing transactions during the year ended December 31, 2020, we recognized a loss on extinguishment of $22 million.

In connection with t he extinguishment in August 2020 of our 5.375% senior secured notes due April 2023 , we recognized a loss on extinguishment of debt of $10 million which consisted of a redemption premium of $7 million and the write-off of unamortized debt issuance costs of $3 million.

In connection with our extinguishment of our 5.25% senior secured notes due November 2023 and our Term Loan A in December 2020, we recognized a loss on extinguishment of debt of $11 million which consisted of a redemption premium of $6 million and the write-off of unamortized debt issuance costs of $5 million.

Debt, to our consolidated financial statements for further details regarding these debt transactions .

Other expense, net

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Other expense, net $ 66,961 $ 9,432 $ 57,529 **

** not meaningful

Other expense, net increased $58 million for the year ended December 31, 2020 compared to the same period in the prior year primarily due to a $46 million charge related to termination payments in connection with our proposed acquisition of Farelogix, a pension plan settlement charge of $18 million, and a benefit recognized in the prior year associated with a reduction to our TRA liability due to the settlement of an audit.

The increase is partially offset by a $10 million gain resulting from the sale of our headquarters buildings in the fourth quarter of 2020.

Acquisitions, to our consolidated financial statements for

further detail regarding the Farelogix acquisition and Note 12.

Leases, to our consolidated financial statements for further details regarding the sale and leaseback transaction.

Provision for Income Taxes

Income from continuing operations $ 164,312 $ 340,921 $ 249,576

Year Ended December 31,

2020 2019 Change

(Amounts in thousands)

Provision for income taxes $ (39,913) $ 35,326 $ (75,239) (213) %

Our effective tax rate for the year ended December 31, 2020 and 2019 was 3.0% and 17.7%, respectively.

The decrease in the effective tax rate for the year ended December 31, 2020 as compared to the same period in 2019 was primarily due to a $202 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 periods.

The differences between our effective tax rate and the U.S.

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

Years Ended December 31, 2019 and 2018

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(Amounts in thousands)

Travel Network $ 2,882,662 $ 2,806,194 $ 76,468 3 %

Airline Solutions 840,338 822,747 17,591 2 %

Travel Solutions $ 3,723,000 $ 3,628,941 $ 94,059 3 %

Hospitality Solutions 292,880 273,079 19,801 7 %

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Total revenue $ 3,974,988 $ 3,866,956 $ 108,032 3 %

Travel Network —Revenue increased $76 million, or 3%, for the year ended December 31, 2019 compared to the prior year, primarily due to an increase in transaction-based revenue of $75 million to $2,709 million.

The increase in revenue primarily resulted from a 1% increase in Direct Billable Bookings to 566 million and growth in the average booking fee rate during the year ended December 31, 2019 due to a discrete shift in the distribution pricing structure for specific European carriers and favorable mix primarily resulting from growth in hotel bookings which have a higher rate.

Airline Solutions —Revenue increased $18 million, or 2%, for the year ended December 31, 2019 compared to the prior year.

The $18 million increase in revenue primarily resulted from:

• a $13 million increase in AirVision and AirCentre commercial and operations solutions revenue primarily driven by license fee revenue from new implementations recognized upon delivery to the customer as well as an increase in revenue related to services and new implementations;

• a $5 million increase in Reservation revenue for the year ended December 31, 2019 compared to the prior year primarily driven by the acquisition of Radixx and organic growth in our existing customer base.

This increase was partially offset by a decrease in the volume of Passengers Boarded, which declined 2% to 741 million for the year ended December 31, 2019, driven by the demigration of the Transitioned Customers as well as the impact of Jet Airways' insolvency and the impact of the 737 Max incident on a particular customer.

Travel Solutions —Revenue increased $94 million, or 3%, for the year ended December 31, 2019 compared to the prior year, primarily due to:

• a $79 million, or 3% increase in transaction-based distribution revenue primarily due to a 1% increase in Direct Billable Bookings to 566 million and growth in the average booking fee rate during the year ended December 31, 2019 due to a discrete shift in the distribution pricing structure for specific European carriers and favorable mix primarily resulting from growth in hotel bookings which have a higher rate;

• a $15 million increase in IT solutions revenue primarily due to a $10 million increase in commercial and operations revenue driven by license fee revenue from new implementations recognized upon delivery to the customer as well as an increase in revenue related to services and new implementations.

Additionally, reservation revenue increased $5 million for the year ended December 31, 2019 compared to the prior year primarily driven by the acquisition of Radixx and organic growth in our existing customer base despite the decline in Passengers Boarded which was driven by the demigration of the certain customers as well as the impact of Jet Airways' insolvency and the impact of the 737 Max incident on a particular customer.

Hospitality Solutions —Revenue increased $20 million, or 7%, for the year ended December 31, 2019 compared to the prior year.

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Additionally, DX service revenue increased $3 million.

Cost of Revenue

Cost of Revenue, excluding technology costs

Year Ended December 31,

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(Amounts in thousands)

Travel Network $ 1,865,968 $ 1,708,142 $ 157,826 9 %

Airline Solutions 513,729 467,668 46,061 10 %

Travel Solutions $ 1,483,154 $ 1,425,084 $ 58,070 4 %

Hospitality Solutions 153,162 137,957 15,205 11 %

Eliminations (40,879) (35,064) (5,815) 17 %

Total segment cost of revenue 2,566,855 2,330,491 236,364 10 %

Total segment cost of revenue, excluding technology costs 1,595,437 1,527,977 67,460 4 %

Corporate 8,094 5,787 2,307 40 %

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Amortization of upfront incentive consideration 82,935 77,622 5,313 7 %

Total cost of revenue $ 3,035,003 $ 2,791,414 $ 243,589 9 %

Travel Network —Cost of revenue increased $158 million, or 9%, for the year ended December 31, 2019 compared to the prior year, partially as a result of a $71 million increase in incentive consideration primarily due to volume growth in North America bookings as well as rate increases across all regions.

The increase is also driven by a $69 million increase in labor costs and a $19 million increase in technology expenditures, both driven by the execution of our technology strategy, including cloud migration, mainframe offload and utilization of agile development methods, which increases the expensed portion of our total technology spend.

Airline Solutions —Cost of revenue increased $46 million, or 10%, for the year ended December 31, 2019 compared to the prior year.

The increase was primarily a result of a $62 million increase in labor costs and a $7 million increase in technology expenditures, both driven by the execution of our technology strategy, including cloud migration, mainframe offload and utilization of agile development methods, which increases the expensed portion of our total technology spend.

The increase was partially offset by a reduction in non-development labor costs and benefits-related costs of $23 million.

Total cost of revenue, excluding technology costs $ 1,726,157 $ 1,654,376 $ 71,781 4 %

Travel Solutions —Cost of revenue increased $58 million, or 4%, for the year ended December 31, 2019 compared to the prior year, partially as a result of a $71 million increase in incentive consideration primarily due to volume growth in North America bookings as well as rate increases across all regions.

The increase is offset by a reduction in labor and professional services costs of $14 million.

Hospitality Solutions —Cost of revenue increased $15 million, or 11%, for the year ended December 31, 2019 compared to the prior year.

The increase was primarily driven by a $28 million increase in labor costs and a $4 million increase in technology expenditures, both driven by the execution of our technology strategy, including cloud migration, mainframe offload and utilization of agile development methods, which increases the expensed portion of our total technology spend.

Additionally, transaction-related costs increased by $14 million to support the growth of our business.

These increases were partially offset by an $8 million reduction in non-development labor costs.

The increase was primarily driven by a $14 million increase in transaction-related costs to support the growth of our business.

Corporate —Cost of revenue associated with corporate costs increased $2 million, or 40%, for the year ended December 31, 2019 compared to the prior year.

This increase was primarily driven by an increase in labor costs resulting from the shift to open source and cloud-based solutions as well as an increase in non-development headcount-related expenses.

Depreciation and amortization —Depreciation and amortization decreased $1 million for the year ended December 31, 2019 compared to the prior year.

The decrease was primarily due to customer implementations that became fully amortized during the year, partially offset by additional depreciation related to the completion of software developed for internal use.

This increase was primarily driven by an increase in headcount-related expenses.

Depreciation and amortization —Depreciation and amortization decreased $3 million, or 8% for the year ended December 31, 2019 compared to the prior year.

The decrease was primarily due to customer implementations that became fully amortized during the year.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration increased $5 million, or 7%, for the year ended December 31, 2019 compared to the prior year primarily due to an increase in upfront consideration provided to travel agencies.

Technology Costs

Year Ended December 31,

2019 2018 Change

(Amounts in thousands)

Technology Costs $ 1,285,204 $ 1,098,641 $ 186,563 17 %

Technology costs increased $187 million, or 17%, for the year ended December 31, 2019 compared to the prior year.

The increase in both our Travel Solutions and Hospitality Solutions businesses is primarily driven by the decline in the capitalization mix of our technology spend as we implement opensource and cloud-based solutions, resulting in an increase in labor costs of $124 million and $29 million, respectively.

Investments pertaining to the modernization, stability, and security of our technology platforms resulted in increased technology costs of $32 million and $4 million in our Travel Solutions and Hospitality Solutions businesses, respectively.

Depreciation and amortization increased $11 million compared to the prior year related to our Hospitality Solutions business, primarily due to the completion of software developed for internal use.

This increase was partially offset by a decrease in labor-related costs in both our Travel Solutions and Hospitality Solutions businesses of $9 million and $8 million, respectively.

Selling, General and Administrative Expenses

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Selling, general and administrative $ 600,210 $ 551,923 $ 48,287 9 %

Selling, general and administrative expenses increased by $63 million, or 12%, for the year ended December 31, 2019 compared to the prior year, primarily driven by an increase in our legal costs associated with the potential acquisition of Farelogix of $41 million, an increase in labor costs of $24 million, an increase in technology costs of $14 million related to strategic investments in cybersecurity and corporate systems, an increase in bad debt expense of $13 million, and an increase in other antitrust litigation expenses of $3 million.

Selling, general and administrative expenses increased by $48 million, or 9%, for the year ended December 31, 2019 compared to the prior year, primarily driven by an increase in labor costs of $13 million and $2 million in our Travel Solutions and Hospitality Solutions businesses, respectively, and an increase in the provision for expected credit losses of $13 million in our Travel Solutions business.

Corporate selling, general and administrative expenses increased due to an increase in legal costs associated with the now-terminated acquisition of Farelogix of $41 million, an increase in labor costs of $9 million, and an increase in other antitrust litigation expenses of $3 million.

The increase was partially offset by the reversal of our previously accrued loss related to the US Airways legal matter for $32 million.

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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 Revolver (see “—Senior Secured Credit Facilities ”).

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

In the current environment, our current principal sources of liquidity is our cash and cash equivalents on hand.

As a result of the significant adverse impact of the COVID-19 pandemic on our financial results and liquidity, we took the following actions in 2020:

• Raised $1.1 billion from the issuance of senior secured and exchangeable notes;

• Raised $598 million in net proceeds from our common stock and mandatory convertible preferred offerings;

• Drew down on our Revolver in the amount of $375 million;

• Reduced our real estate footprint with the sale and leaseback of our headquarters buildings, resulting in net proceeds of $69 million;

• Implemented cost-savings actions as described in "—Recent Developments Affecting our Results of Operations";

• Refinanced over $2 billion of debt;

• Extended our debt maturities to 2023 for the Revolver and 2024 and beyond for our remaining debt maturities;

• Suspended common stock dividends and share repurchases under our Share Repurchase Program.

Our ending cash balance as of December 31, 2020 was $1.5 billion.

See "—Recent Events Impacting Our Liquidity and Capital Resources” for further information.

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

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Outstanding letters of credit 9,674 11,604

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 December 31, 2020 and no balance outstanding as of December 31, 2019.

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

We had outstanding letters of credit totaling $10 million and $12 million as of December 31, 2020 and 2019, respectively, which reduced our overall credit capacity under the Revolver.

Our Revolver matures on November 23, 2023 at the earliest and February 22, 2024 at the latest, depending on certain "springing" maturity conditions.

See “—Senior Secured Credit Facilities .”

We consider cash equivalents to be highly liquid investments that are readily convertible into cash.

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

As a result of the enactment of the TCJA, we recorded a one-time transition tax on the undistributed earnings of our foreign subsidiaries.

We do not consider these undistributed earnings to be indefinitely reinvested as of December 31, 2019, with certain limited exceptions.

We consider the undistributed capital investments in our foreign subsidiaries to be indefinitely reinvested as of December 31, 2019, and have not provided deferred taxes on any outside basis differences.

We do not consider the undistributed earnings to be indefinitely reinvested as of December 31, 2020, with certain limited exceptions.

We consider the undistributed capital investments in our foreign subsidiaries to be indefinitely reinvested as of December 31, 2020, and, accordingly, have not provided deferred taxes on any outside basis differences.

Our cash, cash equivalents and marketable securities held by our foreign subsidiaries are available to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

Liquidity Outlook

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, planned capital expenditures, share repurchases, and dividends 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.

See “Risk Factors—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.”

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

On October 15, 2019, we acquired Radixx for $110 million utilizing cash on hand.

In addition, we have entered into an agreement to purchase Farelogix for $360 million, which will be funded at closing by cash on hand and borrowings under our Revolver.

Under the acquisition agreement, as amended, we have agreed to advance certain attorneys’ fees incurred by Farelogix in responding to certain governmental reviews of the acquisition and in defending against certain antitrust proceedings, which have totaled $20 million for the year ended December 31, 2019.

These advances will be applied against the purchase price upon closing.

The acquisition agreement, as amended, contains certain customary termination rights, including the right of either party to terminate the acquisition agreement if the acquisition has not occurred by April 30, 2020.

We could be obligated to pay Farelogix up to an additional $25 million, either in the form of additional advances or in the form of a termination fee depending on the circumstances.

Furthermore, on an ongoing basis, we will evaluate and consider strategic acquisitions, divestitures, joint ventures, repurchasing shares of our common stock (including pursuant to our multi-year $500 million share repurchase program (the "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.

Given the magnitude of travel decline and the uncertain duration of the COVID-19 impact, we continue to monitor travel activity and take additional steps should we determine they are necessary to support our liquidity position.

During the fourth quarter of 2020, in conjunction with a refinancing transaction, we reduced the minimum liquidity requirement under our Senior Secured Credit Facilities from $450 million to $300 million, which remains in place as long as the covenant suspension resulting from a "Material Travel Event Disruption" (See "—Senior Secured Credit Facilities " below) remains in effect.

Through our refinancing efforts, with the exception of the Revolver as described above, we also extended our debt maturity profile to 2024 such that we have no significant near-term debt maturities.

We believe that approximately two-thirds of our cost structure is adjustable in the near-term, comprised largely of incentive expenses that decline generally in line with bookings and including other variable expenses that are subject to our cost savings measures.

A significant amount of variable expense has declined in line with the overall reduction in travel volumes resulting from the COVID-19 pandemic.

Our technology costs are less variable in nature than other transaction-based costs and include costs associated with our technology transformation.

Technology costs represent a significant portion of our cost base that is not considered adjustable in the near term.

As noted above, we implemented cost-savings actions, to manage our ongoing cost structure.

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

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, pay quarterly dividends on our Preferred Stock (as defined below) when declared, and service our debt and other long-term liabilities.

We have 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.

Due to the significant adverse impact of the COVID-19 pandemic on our business, we have generated significant net operating losses in the current year.

As a result, we do not expect to be a U.S.

federal cash taxpayer in 2021.

Given the near-term risks around 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 and expected transaction volumes, we believe that we have resources to sufficiently fund our liquidity requirements over at least the next twelve months.

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

See “—Recent Events Impacting Our Liquidity and Capital Resources.”

The ongoing effects of COVID-19 on our operations and global bookings have had, and we believe they 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, or outstanding debt obligations in open market or in privately negotiated transactions, as well as other transactions we believe may create stockholder value, improve our liquidity position, enhance financial performance, or support future strategic investments.

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.

We believe that cash flows from operations, cash and cash equivalents on hand and our Revolver provide adequate liquidity for our operational and capital expenditures and other obligations over the next twelve months, as well as funding our acquisition of Farelogix.

We are reviewing opportunities to refinance Term Loan A, Term Loan B, and our Revolver, depending on market conditions.

This refinancing may include a debt issuance, a reallocation between Term Loan A and Term Loan B and an extension of the maturity date of Term Loan A and our revolver.

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

We funded TRA payments of $72 million, $74 million, and $60 million, including interest, due in January 2020, January 2019 and January 2018, respectively, with cash on hand.

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

federal net operating loss carryforwards and a portion of our available U.S.

federal tax credits.

As a result, we expect an increase in the amount of our cash taxes in future years, beginning in 2020.

During the year ended December 31, 2019, we paid quarterly cash dividends on our common stock totaling $154 million and expect to continue to pay quarterly cash dividends thereafter.

Our board of directors has declared a cash dividend of $0.14 per share of our common stock, which will be paid on March 30, 2020 to stockholders of record as of March 20, 2020.

We funded the 2019 dividends, and intend to fund any future dividends, from cash generated from our operations.

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 the impact on our 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.”

Recent Events Impacting Our Liquidity and Capital Resources

Debt Agreements

On December 17, 2020, Sabre GLBL entered into a Sixth Term A Loan Refinancing and Incremental Amendment extending debt maturities to 2027.

Refer to "— Senior Secured Credit Facilities" below for further information.

On August 27, 2020, Sabre GLBL entered into a new debt agreement consisting of $850 million aggregate principal amount of the 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, were used to:

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

(2) redeem all of the $530 million outstanding 5.375% senior secured notes due 2023;

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

Debt, to our consolidated financial statements 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 9.25% 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").

Debt, to our consolidated financial statements for further information.

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

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

The Secured Notes mature on April 15, 2025.

The Exchangeable Notes are senior, unsecured obligations of Sabre GLBL, accrue interest payable semi-annually in arrears and mature on April 15, 2025, unless earlier repurchased or exchanged.

The Exchangeable Notes are exchangeable at their holders’ election, under specified circumstances, into consideration based on Sabre common stock.

This consideration consists of shares of Sabre common stock, cash, or a mixture of the two at Sabre GLBL’s election.

Upon any future occurrence of a “fundamental change” (as defined in the indenture governing the Exchangeable Notes), holders may require Sabre GLBL to repurchase their Exchangeable Notes at a price equal to principal amount plus accrued and unpaid interest.

The Exchangeable Notes bear interest at a rate of 4.00% per annum and interest payments are due semi-annually on April 15 and October 15 of each year, beginning with October 15, 2020.

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

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

Equity Offerings

On August 24, 2020, we completed concurrent offerings of (1) 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 (2) 41,071,429 shares of common stock which generated net proceeds of approximately $275 million.

Unless previously converted, each share of Preferred Stock will automatically convert, for settlement on the mandatory conversion date, which is expected to be September 1, 2023 into between 11.9048 and 14.2857 shares of the Company’s common stock, subject to customary anti-dilution adjustments.

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

Holders of the Preferred Stock will have the right to convert all or any portion of their shares of their Preferred Stock 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 Certificate of Designations governing the Preferred Stock) will be settled at the minimum conversion rate.

In addition, the conversion rate applicable to such an early conversion may in certain circumstances be increased to compensate holders of the Preferred Stock for certain unpaid accumulated dividends.

make-whole fundamental change occurs, then holders of the Preferred Stock will, in certain circumstances, be entitled to convert their Preferred Stock 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 is not subject to redemption at the Company’s option.

If the Company liquidates, dissolves or winds up, whether voluntarily or involuntarily, then, subject to the rights of any of the Company’s creditors or holders of any outstanding liquidation senior stock, each share of Preferred Stock will entitle the holder thereof to receive payment for the following amount out of the Company’s assets or funds legally available for distribution to its stockholders, before any such assets or funds are distributed to, or set aside for the benefit of, any liquidation junior stock:

(1) the liquidation preference per share of Preferred Stock, which is equal to $100.00 per share;

and (2) all unpaid dividends that will have accumulated on such share to, but excluding, the date of such payment.

Dividends on Preferred Stock

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 $8 million of preferred stock dividends in our consolidated results of operations for the year ended December 31, 2020.

During the year ended December 31, 2020, we paid cash dividends on our preferred stock of $6 million.

In February 2021, the Board of Directors declared a dividend of $1.625 per share on Preferred Stock payable on March 1, 2021 to holders of record of the Preferred Stock on February 15, 2021.

Subject to certain exceptions, so long as any share of Preferred Stock remains outstanding, no dividends or distributions will be declared or paid on shares of the Company’s common stock or any other class or series of stock ranking junior to the Preferred Stock, and no common stock or any other class or series stock ranking junior to the Preferred Stock will be purchased, redeemed or otherwise acquired for value by the Company or any of its subsidiaries unless, in each case, all accumulated and unpaid dividends for all prior completed dividend periods, if any, have been paid in full.

In addition, if (i) less than all accumulated and unpaid dividends on the outstanding Preferred Stock have been declared and paid as of any dividend payment date or (ii) the board of directors declares a dividend on the Preferred Stock that is less than the total amount of unpaid dividends on the outstanding preferred stock that would accumulate to, but excluding, any dividend payment date, no dividends may be declared or paid on any parity stock, unless dividends are declared on the shares of Preferred Stock on a pro rata basis.

If accumulated dividends on the outstanding Preferred Stock have not been declared and paid in an aggregate amount corresponding to six or more dividend periods, whether or not consecutive, then, subject to the other provisions of the Preferred Stock, the authorized number of the Company’s directors will automatically increase by two and the holders of the Preferred Stock, voting together as a single class with the holders of each class or series of voting parity stock, if any, will have the right to elect two directors to fill such two new directorships at the Company’s next annual meeting of stockholders (or, if earlier, at a special meeting of the Company’s stockholders called for such purpose).

Dividends on Common Stock

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

As a result of the significant adverse impact of the COVID-19 pandemic on our financial results and liquidity, 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.

Future cash dividends, if any, will be at the discretion of our board of directors and the amount of cash dividends per share will depend upon, among other things, our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, number of shares of common stock outstanding and other factors the board of directors may deem relevant.

The timing and amount of future dividend payments will be at the discretion of our board of directors.

See “Risk Factors—Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware law.”

Recent Events Impacting Our Liquidity and Capital Resources

Term Facility Amendment

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 and incurred $2 million in financing fees recorded within Other, net and a $1 million loss extinguishment of debt in our consolidated results of operations for the year ended December 31, 2018.

Secondary Public Offerings

During the year ended December 31, 2018, certain of our stockholders sold an aggregate of 69,304,636 shares of our common stock through secondary public offerings.

We did not offer any shares or receive any proceeds from these secondary public offerings.

Following the secondary public offering of approximately 23,304,636 shares of common stock during the fourth quarter of 2018, stockholders affiliated with TPG Global, LLC ("TPG") and Silver Lake Management Company II, L.L.C.

("Silver Lake") no longer held any shares of our common stock.

Share Repurchase Program

In February 2017, our Board approved a $500 million multi-year Share Repurchase Program.

Repurchases under the program may take place in the open market or privately negotiated transactions, or otherwise.

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 year ended December 31, 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 certain cash management measures we are undertaking as a result of the market conditions caused by COVID-19.

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

For the year ended December 31, 2019, we repurchased 3,673,768 shares totaling $78 million pursuant to this Share Repurchase Program.

There were no shares repurchased during the fourth quarter of 2019.

Senior Secured Credit Facilities

In February 2013, Sabre GLBL entered into the Amended and Restated Credit Agreement.

The agreement replaced (i) the existing term loans with new classes of term loans of $1,775 million (the “2013 Term Loan B”) and $425 million (the “2013 Term Loan C”) and (ii) the existing revolving credit facility with a new revolving credit facility of $352 million (the “2013 Revolver”).

In September 2013, Sabre GLBL entered into an agreement to amend the Amended and Restated Credit Agreement to add a new class of term loans in the amount of $350 million (the “2013 Incremental Term Loan Facility”).

In July 2016, Sabre GLBL entered into a series of amendments (the “Credit Agreement Amendments”) to our Amended and Restated Credit Agreement to provide for an incremental term loan under a new class with an aggregate principal amount of $600 million (the “2016 Term Loan A”) and to replace the 2013 Revolver with a new revolving credit facility totaling $400 million (the “2016 Revolver”).

The proceeds of $597 million, net of $3 million discount, from the 2016 Term Loan A were used to repay $350 million of outstanding principal on our 2013 Term Loan B and 2013 Incremental Term Loan Facility, on a pro rata basis, repay the $120 million then-outstanding balance on the 2016 Revolver, and pay $11 million in associated financing fees.

We recognized a $4 million loss on extinguishment of debt in connection with these transactions during the year ended December 31, 2016.

On February 22, 2017, Sabre GLBL entered into a Third Incremental Term Facility Amendment to our Amended and Restated Credit Agreement (the “2017 Term Facility Amendment”).

The new agreement replaced the 2013 Term Loan B, 2013 Term Loan C, and 2013 Incremental Term Loan Facility with a single class of term loan (the "2017 Term Loan B") with an aggregate principal amount of $1,900 million maturing on February 22, 2024.

The proceeds of $1,898 million, net of $2 million discount on the 2017 Term Loan B, were used to pay off approximately $1,761 million of all existing classes of outstanding term loans (other than the 2016 Term Loan A), pay related accrued interest and pay $12 million in associated financing fees, which were recorded as debt modification costs in Other, net in the consolidated statement of operations during the three months ended March 31, 2017.

The remaining proceeds of the 2017 Term Loan B were used to pay off approximately $80 million of Sabre’s outstanding mortgage on its corporate headquarters on March 31, 2017 and for other general corporate purposes.

Unamortized debt issuance costs and discount related to existing classes of outstanding term loans prior to the 2017 Term

Facility Amendment of $9 million and $3 million, respectively, will continue to be amortized over the remaining term of the 2017 Term Loan B along with the Term Loan B discount of $2 million.

Derivatives, to our consolidated financial statements for information regarding the discontinuation of hedge accounting related to our existing interest rate swaps as a result of the 2017 Term Facility Amendment.

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 the Credit Agreement, and Second Revolving Facility Refinancing Amendment to the Credit Agreement to refinance and modify the terms of the 2017 Term Loan B, the 2016 Term Loan A, and the 2016 Revolver, resulting in a reduction of the applicable margins for each of these instruments and approximately a one-year extension of the maturity of the 2016 Term Loan A and 2016 Revolver (the “2017 Refinancing”).

We incurred no additional indebtedness as a result of the 2017 Refinancing.

The 2017 Refinancing included a $400 million revolving credit facility ("Revolver") that replaced the 2016 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”) to replace the 2017 Term Loan B and the 2016 Term Loan A.

The maturity of the Revolver and the Term Loan A was extended from July 18, 2021 to July 1, 2022.

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.

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.

On December 17, 2020, Sabre GLBL entered into a Sixth Term A Loan Refinancing and Incremental Amendment to our Amended and Restated Credit Agreement, resulting in additional Term Loan B borrowings of $637 million ("Other Term B Loans") due December 17, 2027.

The applicable interest rate margins for the Other Term B Loans is 4.00% per annum for Eurocurrency rate loans and 3.00% per annum for base rate loans, with a floor of 0.75% for the Eurocurrency rate, and 1.75% for the base bate, respectively.

The net proceeds from the issuance were used to fully redeem both the $500 million outstanding 5.25% senior secured notes due November 2023 and the $134 million outstanding Term Loan A.

Additionally, on December 17, 2020, Sabre GLBL entered into "an Amendment No.

3 to the Amended and Restated Credit Agreement (the "Pro Rata Amendment and the Refinancing Amendment")" which reduced the minimum liquidity requirement in the financial performance described outlined

below from $450 million to $300 million.

We incurred no material additional indebtedness as a result of these transactions, other than amounts covering certain interest, fees and expenses.

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 November 23, 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.

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, 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 (reduced to $300 million pursuant to the refinancing in December 2020 as discussed above).

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 applicable margins for the Revolver are between 2.50% and 1.75% per annum for Eurocurrency rate loans and between 1.50% and 0.75% per annum for base rate loans, 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.

These interest rate spreads for the Revolver were increased by 0.25%, during covenant suspension, in connection with the 2020 Refinancing.

The applicable margins for the Term Loan B are 2.00% per annum for Eurocurrency rate loans and 1.00% per annum for base rate loans.

The maturity date of Term Loan B is 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 December 31, 2020, the capacity reductions by domestic airlines in response to the COVID-19 outbreak and related 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 fourth quarter of 2020 and first quarter of 2021.

We are also required to pay down the Term Loan B 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, 2019, we were not required to make an excess cash flow payment in 2020, and no excess cash flow payment is required in 2021 with respect to our results for the year ended December 31, 2020.

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.

The Eurocurrency rate is based on LIBOR.

In July 2017, the Financial Conduct Authority announced its intention to phase out LIBOR by the end of 2021.

In July 2017, the Financial Conduct Authority announced its intention to phase out LIBOR by the end of 2021, and subsequently extended the phase-out date to June 30, 2023.

If a published U.S.

2 unchanged sentences

See “Risk Factors—We are exposed to interest rate fluctuations.” We anticipate amending our Amended and Restated Credit Agreement prior to the phaseout of LIBOR to provide for a Eurocurrency rate alternative to LIBOR.

See "—Recent Events Impacting Our Liquidity and Capital Resources" above.

We had no balance outstanding under the Revolver as of December 31, 2019 and as of December 31, 2018.

We had outstanding letters of credit totaling $12 million and $15 million as of December 31, 2019 and December 31, 2018, respectively, which reduced our overall credit capacity under the Revolver.

As of December 31, 2019 we are in compliance with all covenants under the Amended and Restated Credit Agreement.

We are also required to pay down the term loans by an amount equal to 50% of annual excess cash flow, as defined in our 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 was 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, we entered into the TRA that provides the 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") the right to receive future payments from us equal to 85% of the amount of cash savings, if any, in U.S.

federal income tax that we and our subsidiaries realize as a result of the utilization of certain tax assets attributable to periods prior to our initial public offerings, including NOLs, capital losses and the ability to realize tax amortization of certain intangible assets (collectively, the "Pre-IPO Tax Assets").

In connection with the TRA, we made payments, including interest, of $72 million in January 2020, $30 million in April 2019, and $74 million, $60 million and $101 million in January 2019, 2018 and 2017, respectively.

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 connection with the TRA, we made payments, including interest, of $72 million in January 2020, $105 million in 2019, and $60 million in 2018, respectively.

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

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

Technology Expenditures

We maintain and make enhancements to our products, services, technologies and systems in response to technological developments, industry standards, trends, and customer demands.

We deploy resources in research and development in order to help maintain a competitive advantage and deliver innovation to the marketplace.

Software developed for internal use includes costs incurred to enhance our infrastructure, software applications, and reservation systems.

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

The aggregation of these costs represents our total technology expenditures of $1,034 million, $999 million, and $940 million for the years ended December 31, 2019, 2018, and 2017 respectively.

These amounts include hosting, third-party software and expensed research and development costs of $945 million, $744 million, and $675 million for the years ended December 31, 2019, 2018, and 2017, respectively, and capitalized software development expenditures of $89 million, $256 million, and $264 million for these respective periods.

This definition of total technology expenditures does not include computer equipment or other property, plant, and equipment.

See "Factors Affecting Our Results—Technology transformation and change in mix of technology spend."

Operating Activities

Cash provided by operating activities for the year ended December 31, 2019 was $581 million and consisted of net income from continuing operations of $164 million, adjustments for non-cash and other items of $568 million and a decrease in cash from changes in operating assets and liabilities of $151 million.

The adjustments for non-cash and other items consist primarily of $415 million of depreciation and amortization, $83 million in amortization of upfront incentive consideration, $67 million of stock-based compensation expense, $23 million of deferred income taxes, and $21 million allowance for doubtful accounts.

The decrease in cash from changes in operating assets and liabilities of $151 million was primarily the result of $71 million used for upfront incentive consideration, $34 million increase in accounts receivable, $29 million used for capitalized implementation costs, $27 million decrease in accounts payable, $17 million decrease in accrued compensation and related benefits, and a $12 million decrease in deferred revenues.

These decreases were partially offset by a decrease of $39 million in other assets and a decrease of $1 million in prepaid expenses and other current assets.

Cash provided by operating activities for the year ended December 31, 2018 was $725 million and consisted of net income from continuing operations of $341 million, adjustments for non-cash and other items of $607 million and a decrease in cash from changes in operating assets and liabilities of $223 million.

The adjustments for non-cash and other items consist primarily of $413 million of depreciation and amortization, $78 million in amortization of upfront incentive consideration, $57 million of stock-based compensation expense, and $43 million of deferred income taxes.

The decrease in cash from changes in operating assets and liabilities of $223 million was primarily the result of $89 million used for upfront incentive consideration, a $75 million increase in accounts receivable, $39 million used for capitalized implementation costs, a $30 million increase in other assets, a $27 million decrease in accounts payable, and a $15 million decrease in accrued compensation and related benefits.

These decreases were partially offset by the receipt of $29 million from an insurance settlement, an increase of $8 million in deferred revenues, and a decrease of $14 million in prepaid expenses and other current assets.

Cash used in operating activities totaled $770 million for the year ended December 31, 2020.

The $1.4 billion decrease in operating cash flow from 2019 is primarily due to the impact of COVID-19 on the travel industry and on our results of operations during 2020, severance payments of $48 million related to restructuring activities during 2020, additional interest payments of $29 million resulting from debt refinancing activities during 2020, acquisition termination fees paid in 2020 of $21 million, and net cash outflows to carriers resulting from the cancellations of previous bookings.

This decrease in operating cash flow was partially offset by a $44 million decrease in upfront incentive consideration payments and a $31 million decrease in tax payments.

We expect our cash burn rate to improve sequentially during 2021.

We expect the first quarter of 2021 to be negatively impacted by the timing of significant working capital items relative to other quarters in 2021, including the payment of a significant portion of our remaining $23 million severance liability.

Cash provided by operating activities totaled $581 million for the year ended December 31, 2019.

The $144 million decrease in cash flow provided by operating activities from 2018 is primarily due to the increase in technology expenditures, driven by the execution of our technology strategy, including cloud migration, mainframe offload and utilization of agile development methods, which increases the expensed portion of our total technology spend and reduces net income.

Investing Activities

For the year ended December 31, 2020, we had $69 million provided by proceeds from the sale of our two headquarter buildings.

Cash provided from the sale was offset by cash used of $65 million on capital expenditures, including $41 million related to software developed for internal use.

For the year ended December 31, 2019, we used cash of $243 million in investing activities, including $107 million used in the acquisition of Radixx, net of cash acquired, and $89 million related to software developed for internal use.

Additionally, we used cash of $20 million as an advance of purchase price to Farelogix for certain attorneys' fees.

See "—Liquidity Outlook" above for additional information on the Farelogix acquisition agreement.

For the year ended December 31, 2018, we used cash of $284 million on capital expenditures, which includes capitalized software development of $256 million, consisting of $252 million related to software developed for internal use and $4 million for development of on-premise licensed products.

Refer to Note 3.

Acquisitions for additional information on the now-terminated Farelogix acquisition agreement.

Financing Activities

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Significant highlights of our financing activities included:

• 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 $1,030 million on senior secured notes due 2023;

• payment of $503 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 $78 million on debt issuance costs;

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

• payment of $45 million on our revolving credit facility and $62 million on our Term Loan A and Term Loan B, offset by proceeds of $45 million from borrowings on our revolving credit facility;

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

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

• 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.

• net payments of $6 million from the settlement of employee stock-option awards, including payments of $6 million in income tax withholdings associated with the settlement of employee restricted-stock awards;

• payment of $5 million on our capital leases.

For the year ended December 31, 2019, we used $410 million for financing activities.

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• payment of $154 million in dividends on our common stock;

• second annual payment in January 2018 on the TRA liability for $59 million, excluding interest;

• payment of $47 million on our Term Loan A and Term Loan B and $2 million in debt issuance and modification costs;

• payment of $45 million on our revolving credit facility and $62 million ion our Term Loan A and Term Loan B, offset by proceeds of $45 million from borrowings on our revolving credit facility;

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

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

• receipt of net proceeds totaling $2 million from the settlement of employee stock-option awards, including a payment of $10 million in income tax withholdings associated with the settlement of employee restricted-stock awards.

• net payments of $6 million from the settlement of employee stock-option 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.

Discontinued Travelocity Business

Cash flows used in discontinued operating activities were $2 million, $2 million, and $5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Cash flows used in discontinued operating activities were $3 million and $2 million for the years ended December 31, 2020 and 2019, respectively.

The cash flows used by discontinued operations for the year ended December 31, 2020 and 2019 primarily resulted from expenses associated with legal contingencies related to hotel occupancy taxes.

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— — — — — 95,716 95,716

Tax Receivable Agreement (7)

71,958 — — — — — 71,958

Total contractual cash obligations (7)

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_______________________

(1) Includes all interest and principal of borrowings under our senior secured credit facilities, senior secured notes due 2023 and finance lease obligations.

(1) Includes all interest and principal of borrowings under our senior secured credit facilities, senior secured notes due 2025, senior exchangeable notes due 2025 and finance lease obligations.

Under certain circumstances, we are required to pay a percentage of the excess cash flow, if any, generated each year to our lenders which obligation is not reflected in the table above.

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We have no purchase options and no restrictions imposed by our leases concerning dividends or additional debt.

Also includes future minimum payment obligations for an operating lease commencing in the first quarter of 2020.

Leases, to our consolidated financial statements.

(3) Represents minimum amounts due to DXC under the terms of an outsourcing agreement through which DXC manages a significant portion of our information technology systems.

Also reflects minimum amounts due under an information technology agreement entered into during the first quarter of 2020.

Also reflects minimum amounts due under other information technology agreements that contain minimum committed spend.

Actual payments may vary significantly from the minimum amounts presented.

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The timing of related cash payments for substantially all of these liabilities is inherently uncertain because the ultimate amount and timing of such liabilities is affected by factors which are variable and outside our control.

(7) We made payments, including interest, of $72 million in January 2020.

Income Taxes, to our consolidated financial statements and “Liquidity and Capital Resources—Tax Receivable Agreement.”

(7) Excludes pension obligations, see Note 16.

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Revenue Recognition and Multiple Performance Obligation Arrangements

Our agreements with customers of our Airline Solutions business may have multiple performance obligations which generally include software solutions through SaaS and hosted delivery, professional service fees and implementation services.

In addition, from time to time, we enter into agreements with customers to provide access to Travel Network’s GDS and, at or near the same time, enter into a separate agreement to provide software solutions through SaaS and hosted delivery.

Our agreements with customers of our Travel Solutions business may have multiple performance obligations which generally include software solutions through SaaS and hosted delivery, professional service fees and implementation services.

In addition, from time to time, we enter into agreements with customers to provide access to Travel Solutions' GDS and, at or near the same time, enter into a separate agreement to provide IT solutions through SaaS and hosted delivery.

These multiple performance obligation arrangements involve judgments, including estimates of the selling prices of goods and services, attribution of variable consideration, assessments of the likelihood of nonpayment and estimates of total costs and costs to complete a project.

Revenue recognition from our Airline Solutions business requires significant judgments such as identifying distinct performance obligations including material rights within an agreement, estimating the total contract consideration and allocating amounts to each distinct performance obligation, determining whether variable pricing within a contract meets the allocation objective, and forecasting future volumes.

Revenue recognition from our IT Solutions products requires significant judgments such as identifying distinct performance obligations including material rights within an agreement, estimating the total contract consideration and allocating amounts to each distinct performance obligation, determining whether variable pricing within a contract meets the allocation objective, and forecasting future volumes.

For a small subset of our contracts, we are required to forecast volumes as a result of pricing variability within the contract in order to calculate the rate for revenue recognition.

Any changes in these judgments and estimates could have an impact on the revenue recognized in future periods.

The professional and implementation services are generally performed in the early stages of the agreements.

Access to our GDS is provided over the full term of the contract.

Software solutions through SaaS and hosted delivery are often not provided until implementation services are completed.

Our forecasted volumes were significantly impacted in 2020 due to the impacts of COVID-19 on our customers which had, and will continue to have, a significant impact on our current and future revenues.

We evaluate revenue recognition for agreements with customers which generally are represented by individual contracts but could include groups of contracts if the contracts are executed at or near the same time.

Typically, access to our GDS and our professional service fees are separated from the implementation and software hosting services.

Typically, access to our GDS and our professional service fees are separated from the implementation and software services.

We account for separate performance obligations on an individual basis with value assigned to each performance obligation based on our best estimate of relative standalone selling price ("SSP").

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For the year ended December 31, 2020, we did not impair any of these assets as a result of the related contracts becoming uncollectable, modified or canceled.

Impairment and Related Charges regarding 2017 impairments.

Contracts are priced to generate total revenues over the life of the contract that exceed any discounts or advances provided and any upfront costs incurred to implement the customer contract.

Air Booking Cancellation Reserve

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

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

Cancellations prior to the day of departure are estimated based on the historical level of cancellation rates, adjusted to take into account any recent factors which could cause a change in those rates.

In circumstances where expected cancellation rates or booking behavior changes, our estimates are revised, and in these circumstances, future cancellation rates could vary materially, with a corresponding variation in revenue net of estimated future cancellations.

Factors that could have a significant effect on our estimates include global security issues, epidemics or pandemics, natural disasters, general economic conditions, the financial condition of travel suppliers, and travel related accidents.

Factors that could have a significant effect on our estimates include global security issues, epidemics or pandemics (such as that experienced in the current year as a result of COVID-19), natural disasters, general economic conditions, the financial condition of travel suppliers, and travel related accidents.

Our cancellation reserve is highly sensitive to our estimate of bookings that we expect will eventually travel, as well as to the mix of those bookings between domestic and international, given the varying rates paid by airline suppliers.

The air booking cancellation reserve was $18 million as of December 31, 2020.

If international cancellations increased by 10% on the same estimated base of cancelled bookings, the reserve as of December 31, 2020 would increase by $1 million.

If total bookings expected to cancel increased by 10%, the reserve as of December 31, 2020 would increase by $2 million.

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.

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 provide for credit losses 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.

All receivables aged over twelve months are fully reserved.

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, resulting in a material impact to our results of operations.

Credit Losses, to our consolidated financial statements for further considerations involved in the development of this estimate.

Business Combinations

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If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, we will recognize an asset or a liability for such pre-acquisition contingency if:

(i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated.

(i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably

Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our results of operations and financial position.

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Goodwill and Long-Lived Assets

Goodwill was assigned to each reporting unit based on that reporting unit’s percentage of enterprise value as of the date of the acquisition of Sabre Corporation by TPG and Silver Lake plus goodwill associated with acquisitions since that time.

We have three reporting units associated with our continuing operations:

Travel Network, Airline Solutions and Hospitality Solutions.

We have two reporting units associated with our continuing operations:

Travel Solutions and Hospitality Solutions.

As a result of the 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.

Goodwill related to our reporting units totaled $2.6 billion as of December 31, 2020.

We evaluate goodwill for impairment on an annual basis or when impairment indicators exist.

We begin our evaluation with a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying a quantitative assessment.

If it is determined through the evaluation of events or circumstances that the carrying value may not be recoverable, we perform a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities of that unit.

If the sum of the carrying value of the assets and liabilities of a reporting unit exceeds the estimated fair value of that reporting unit, the carrying value of the reporting unit’s goodwill is reduced to its fair value through an adjustment to the goodwill balance, resulting in an impairment charge.

We did not record any goodwill impairment charges for the years ended December 31, 2019, 2018 and 2017.

The determination of fair value requires us to make significant judgments and estimates including cash flow projections and assumptions related to market participants, the principal markets, and the highest and best use of the reporting units.

Changes in the assumptions used in our impairment testing may result in future impairment losses which could have a material impact on our results of operations.

As of December 31, 2019, the fair value exceeded the carrying value for each of our three reporting units by more than 10%.

Due to triggering events related to the COVID-19 pandemic, we performed a quantitative assessment, as of March 31, 2020.

This assessment was based on our current projections and was subject to various risks, uncertainties and estimates including:

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

Fair Value Measurements, to our consolidated financial statements.

In estimating fair value, we considered current estimates of recovery in global passenger traffic volume to pre-COVID-19 levels.

Should a significant change in the estimated recovery period elongate further than our expectations, it could have a material impact on our estimates of fair value.

Additionally, we increased discount rates to account for increased risk within our business and estimates.

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

We updated our goodwill assessment quarterly on a qualitative basis during 2020 and determined that our goodwill was not impaired at any reporting date in 2020.

Our qualitative assessments considered recent information available regarding the anticipated duration of the recovery period which we believe to be a key assumption, including information as of November 2020 from the International Air Transport Association (IATA) that forecast in its base-case scenario that global passenger traffic is not expected to return to pre-COVID-19 levels until 2024.

As of December 31, 2020, based on a qualitative analysis, the fair value exceeded the carrying value for each of our two reporting units by more than 20%.

Additionally, we did not record any goodwill impairment charges for the years ended December 31, 2019 and 2018.

Definite-lived intangible assets are assigned depreciable lives of two to thirty years, depending on classification, and are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of definite-lived intangible assets used in combination to generate cash flows largely independent of other assets may not be recoverable.

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We did not record material intangible asset impairment charges for the years ended December 31, 2020, 2019 and 2018.

The most significant assumptions used in the discounted cash flows calculation to determine the fair value of our reporting units in connection with impairment testing include:

(i) the discount rate, (ii) the expected long-term growth rate and (iii) annual cash flow projections.

Fair Value Measurements, to our consolidated financial statements.

Capitalized Implementation Costs

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Capitalized implementation costs are amortized on a straight-line basis over the related contract term, ranging from three to ten years, as they are recoverable through deferred or future revenues associated with the relevant contract.

These assets are reviewed for recoverability on a periodic basis or when an event occurs that could impact the recoverability of the assets, such as a significant contract modification or early renewal of contract terms.

These assets are reviewed for recoverability on a periodic basis or when an event occurs that could impact the recoverability of the assets, such as the impact of COVID-19 on a particular customer, a significant contract modification or early renewal of contract terms.

Recoverability is measured based on the future estimated revenue and direct costs of the contract compared to the capitalized implementation costs.

During 2020, we considered current estimates of recovery from the COVID-19 pandemic to 2019 levels, which we believe to be a key assumption in our assessment of recoverability.

We record an impairment charge for the portion of the asset considered unrecoverable in the period identified, while considering the uncertainties associated with these types of contracts and judgments made in estimating revenue and direct costs.

For the year ended December 31, 2019, we recorded $2 million in impairments associated with unrecoverable amounts in capitalized implementation costs.

For the year ended December 31, 2020, we recorded $10 million in impairments associated with unrecoverable amounts in capitalized

implementation costs.

During the year ended December 31, 2019, we recorded $2 million in impairments associated with unrecoverable amounts in capitalized implementation costs.

During the year ended December 31, 2017, given the substantial amount of uncertainty of reaching an agreement regarding the implementation of services pursuant to the contract with a customer in our Airline Solutions business, we assessed recoverability of all balances with the customer which resulted in an impairment charge totaling $81 million, which included related capitalized implementation costs.

Impairment and Related Charges, to our consolidated financial statements for additional information.

Capitalized Software Developed for Internal Use

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As we expected, this transition towards implementing this methodology reduced our capitalization of certain costs with a corresponding increase in our product and technology operating expenses.

Costs that cannot be separated

between maintenance of, and relatively minor upgrades and enhancements to, internal use software are also expensed as incurred.

Costs that cannot be separated between maintenance of, and relatively minor upgrades and enhancements to, internal use software are also expensed as incurred.

During the years ended December 31, 2020, 2019 and 2018, we capitalized $41 million, $89 million, and $252 million, respectively, related to software developed for internal use.

During the year ended December 31, 2020, we recorded an impairment charge of $5 million associated with software developed for internal use based on our analysis of the recoverability of such amounts.

Income and Non-Income Taxes

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A change in these assumptions could cause an increase or decrease to the valuation allowance resulting in an increase or decrease in the effective tax rate, which could materially impact our results of operations.

At year end, we had a valuation allowance on certain loss carryforwards based on our assessment that it is more likely than not that the deferred tax asset will not be realized.

The COVID-19 pandemic has caused increased uncertainty in determining certain key assumptions within the assessment of our future taxable income upon which recognition of deferred tax assets is assessed.

At year end, we had a valuation allowance on a portion of our deferred tax assets based on our assessment that it is more likely than not that the deferred tax asset will not be realized.

We believe that our estimates for the valuation allowances against deferred tax assets are appropriate based on current facts and circumstances.

We believe that it is more likely than not that the benefit from certain non-U.S.

deferred tax assets will not be realized.

As a result, we established and maintain a valuation allowance on the non-U.S.

deferred tax assets of our lastminute.com and other non-US subsidiaries of $33 million and $55 million as of December 31, 2019 and 2018, respectively.

Also it is more likely than not that the benefit from certain U.S.

state deferred tax assets will not be realized.

As a result, we established and maintain a valuation allowance on these U.S.

state deferred tax assets of $5 million and $4 million as of December 31, 2019 and 2018, respectively.

When assessing the need for a valuation allowance, all positive and negative evidence is analyzed, including our ability to carry back net operating losses ("NOLs") to prior periods, the reversal of deferred tax liabilities, tax planning strategies and projected future taxable income.

Significant losses related to COVID-19 resulted in a three-year cumulative loss in certain jurisdictions, which represents significant negative evidence regarding the ability to realize deferred tax assets.

As a result, we established a valuation allowance on a portion of our U.S.

deferred tax assets of $165 million as of December 31, 2020.

We also established and maintained a U.S.

state valuation allowance on current year losses and other deferred tax assets of $15 million and $5 million as of December 31, 2020 and 2019, respectively.

deferred tax assets of certain subsidiaries, we established and maintained a valuation allowance on current year losses and other deferred tax assets of $71 million and $33 million as of December 31, 2020 and 2019, respectively.

We reassess these assumptions regularly, which could cause an increase or decrease to the valuation allowance resulting in an increase or decrease in the effective tax rate, and could materially impact our results of operations.

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What changed 10-K

Item 7. Management’s Discussion and Analysis