What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-06 · 229 added, 481 removed, 258 unchanged (73% of the section changed)

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

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

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

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

As a result of these strategic realignment efforts, we now operate our business and

present our results through two business segments effective the third quarter:

Effective the third quarter of 2020, we operate our business and present our results through two business segments:

(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.

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

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

Segment Information for results for the three and nine months ended September 30, 2020 by reportable segment.

Recent Developments Affecting our Results of Operations

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

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

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

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

Actual cancellations during the third quarter were fewer than expected as of the end of the second quarter.

This combination of actual cancellation activity and fewer bookings resulted in a reduction in the cancellation reserve during the third quarter.

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

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

Additionally, during the third quarter of 2020, we completed equity offerings which resulted in net proceeds of $598 million, extended the maturity of our Term Loan A and Revolver, and used proceeds from newly issued notes due in September 2025 to pay down Term Loan A and notes due in April 2023.

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

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

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

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

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

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

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

• 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.

In connection with these measures, we recorded a $74 million charge associated with these restructuring activities during the nine months ended September 30, 2020.

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

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

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

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

• Amended the 2020 performance metrics associated with the performance stock awards that vest in March 2021;

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

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

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

Given the uncertainties surrounding the duration of the outbreak and its impact on global travel, we cannot reasonably estimate the related financial impact to our full-year 2020 financial results, but we expect a net loss on both a U.S.

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

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

The CARES Act also modifies sections of the Internal Revenue Code of 1986, as amended ("IRC").

Certain IRC modifications relax limitations on deductions, which were enacted as part of the Tax Cuts and Jobs Act.

At this time, we do not expect to participate in the CARES Act loan program for the aviation industry.

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

During the nine months ended September 30, 2020, several of our customers filed for bankruptcy protection in various jurisdictions.

As expected, this pandemic has continued to have a material impact to our consolidated financial results in the first quarter of 2021, resulting in a material decrease in transaction-based revenue across both of our business units compared to the prior year.

Lower GDS volumes have continued to result in a material decline in incentive consideration costs, as expected.

Despite the continued negative impacts of the COVID-19 pandemic on our business and global travel volumes, as COVID-19 vaccines have continued to be administered, we have seen some continued improvement in our key volume metrics during the first quarter of 2021, led by

our Hospitality Solutions business.

Domestic bookings continue to exceed international bookings, however, negatively impacting revenue.

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

Our air booking cancellation reserve totaled $18 million as of March 31, 2021, which is consistent with the reserve as of December 31, 2020.

Additionally, our provision for expected credit losses for the three months ended March 31, 2021 decreased $39 million from the same period in the prior year, primarily related to fully reserving for aged balances of certain customers in the prior year and an overall improvement in our forecasted credit losses in the current year given the slow global economic recovery from the COVID-19 pandemic.

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.

Credit Losses.

Given the uncertainties surrounding the duration and effects of COVID-19 on transaction volumes in the global travel industry, particularly air travel transaction volumes and future cancellation activity, including from airlines’ insolvency or suspension of service or aircraft groundings, we cannot provide assurance that the assumptions used in the estimates of our cancellation reserve and our allowance for expected credit losses will be accurate.

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 this negative impact may continue well beyond the containment of the outbreak.

Given the liquidity measures we enacted during 2020 and our ending cash balance of $1.3 billion as of March 31, 2021, we believe that we have resources to sufficiently fund our liquidity requirements over at least the next twelve months;

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

Factors Affecting our Results

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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.

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

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

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

Recognition of license fees upon delivery has previously resulted and will continue to result in periodic fluctuations in revenue recognized.

Cost of Revenue

Cost of revenue, 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.

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

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

Cost of revenue also includes amortization of upfront incentive consideration representing upfront payments or other consideration provided to travel agencies for reservations made on our GDS which are capitalized and amortized over the expected life of the contract.

We have reclassified expenses on our statement of operations to provide additional clarification on our costs.

As a result, cost of revenue decreased by $332 million and $981 million for the three and nine months ended September 30, 2019, respectively.

General Information for more information.

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.

Technology Costs

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

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

As discussed in Note 1.

General Information, we have reclassified expenses on our statement of operations to provide additional clarification on our costs by separately reporting technology costs.

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

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

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.

Selling, General and Administrative Expenses

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

We have reclassified expenses on our statement of operations to provide additional clarification on our costs.

As a result , selling, general and administrative expenses increased by $9 million and $17 million for the three and nine months ended September 30, 2019, respectively.

General Information for more information.

Intersegment Transactions

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

Travel Solutions generates distribution revenue for each Direct Billable Booking which include bookings made through our GDS (e.g., Air, and Lodging, Ground and Sea ("LGS")) and through our equity method investments in cases where we are paid directly by the travel supplier and for Air Bookings, are presented net of bookings cancelled within the period presented.

Travel Solutions 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 (the "HS Central Reservation System").

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

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

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

2020 2019 % Change 2020 2019 % Change

Three Months Ended March 31,

2021 2020 % Change

Travel Solutions

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Definitions of Non-GAAP Financial Measures

We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this Quarterly Report on Form 10-Q, including Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income from continuing operations ("Adjusted Net (Loss) Income"), Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures.

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

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

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

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

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

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

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

We have included both financial measures compiled in accordance with GAAP and certain non-GAAP financial measures in this Quarterly Report on Form 10-Q, including Adjusted Operating Loss, Adjusted Net Loss from continuing operations ("Adjusted Net Loss"), Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures.

As a result of the strategic realignment in the third quarter of 2020, we have separated our technology costs from cost of revenue and moved certain expenses previously classified as cost of revenue to selling, general and administrative to provide increased visibility to

our technology costs for analytical and decision-making purposes and to align costs with the current leadership and operational organizational structure.

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

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

We define Adjusted EBITDA as Loss from continuing operations adjusted for depreciation and amortization of property and equipment, amortization of capitalized implementation costs, acquisition-related amortization, restructuring and other costs, interest expense, net, other, net, acquisition-related costs, litigation costs, net, stock-based compensation and the remaining provision for income taxes.

We have revised our calculation of Adjusted EBITDA to no longer exclude the amortization of upfront incentive consideration in all periods presented.

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

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

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

These non-GAAP financial measures are key metrics used by management and our board of directors to monitor our ongoing core operations because historical results have been significantly impacted by events that are unrelated to our core operations as a result of changes to our business and the regulatory environment.

We believe that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate our ability to service debt obligations, fund capital expenditures and meet working capital requirements.

We also believe that Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income and Adjusted EBITDA assist investors in company-to-company and period-to-period comparisons by excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the impact of depreciation and amortization expense.

We also believe that Adjusted Operating Loss, Adjusted Net Loss and Adjusted EBITDA assist investors in company-to-company and period-to-period comparisons by excluding differences caused by variations in capital structures (affecting interest expense), tax positions and the impact of depreciation and amortization expense.

In addition, amounts derived from Adjusted EBITDA are a primary component of certain covenants under our senior secured credit facilities.

Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income, Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures are not recognized terms under GAAP.

Adjusted Operating Loss, Adjusted Net Loss, Adjusted EBITDA, Free Cash Flow and ratios based on these financial measures are not recognized terms under GAAP.

These non-GAAP financial measures and ratios based on them are unaudited and have important limitations as analytical tools, and should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating performance or cash flows from operating activities as measures of liquidity.

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• these non-GAAP financial measures exclude certain recurring, non-cash charges such as stock-based compensation expense and amortization of acquired intangible assets;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted Gross Profit (Loss) and Adjusted EBITDA do not reflect cash requirements for such replacements;

• Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted Gross Profit (Loss) does not include technology costs, including transaction-based technology costs, which differs from our previous presentations;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements;

• Adjusted EBITDA does not reflect amortization of capitalized implementation costs associated with our revenue contracts, which may require future working capital or cash needs in the future;

• Adjusted Operating Loss, Adjusted Net Loss and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;

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• Free Cash Flow removes the impact of accrual-basis accounting on asset accounts and non-debt liability accounts, and does not reflect the cash requirements necessary to service the principal payments on our indebtedness;

• other companies, including companies in our industry, may calculate Adjusted Gross Profit (Loss), Adjusted Operating (Loss) Income, Adjusted Net (Loss) Income, Adjusted EBITDA or Free Cash Flow differently, which reduces their usefulness as comparative measures.

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

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

2020 2019 2020 2019

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

• other companies, including companies in our industry, may calculate Adjusted Operating Loss, Adjusted Net Loss, Adjusted EBITDA or Free Cash Flow differently, which reduces their usefulness as comparative measures.

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

Three Months Ended March 31,

Net loss attributable to common stockholders $ (266,106) $ (212,680)

Loss from discontinued operations, net of tax 263 2,126

Net income attributable to non-controlling interests (1)

125 771 837 3,289

Preferred stock dividends 5,428 —

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

Loss from continuing operations (259,931) (209,771)

Acquisition-related amortization (2a)

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(5,135) 25,281

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

Other, net (3)

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Acquisition-related costs (5)

591 9,696 22,791 30,337

Litigation costs, net (6)

247 (24,179) 2,103 (21,355)

Stock-based compensation 24,426 17,577

Tax impact of adjustments (7)

3,633 (11,971) 8,384 (31,424)

Adjusted Net (Loss) Income from continuing operations $ (240,347) $ 73,565 $ (678,326) $ 235,218

Adjusted Net (Loss) Income from continuing operations per share $ (0.82) $ 0.27 $ (2.42) $ 0.85

Adjusted Net Loss from continuing operations $ (228,274) $ (79,976)

Adjusted Net Loss from continuing operations per share $ (0.72) $ (0.29)

Diluted weighted-average common shares outstanding 317,634 274,037

Adjusted Net (Loss) Income from continuing operations $ (240,347) $ 73,565 $ (678,326) $ 235,218

Depreciation and amortization of property and equipment (2b)

63,733 78,060 201,274 232,617

Amortization of capitalized implementation costs (2c)

9,146 9,579 28,110 31,317

Amortization of upfront incentive consideration (3)

19,444 20,851 56,733 59,825

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

Remaining provision for income taxes (23,997) 19,766 (61,720) 63,207

Adjusted EBITDA $ (104,370) $ 241,564 $ (290,255) $ 739,548

Depreciation and amortization (2)

89,344 103,615 279,159 311,905

Amortization of upfront incentive consideration (3)

19,444 20,851 56,733 59,825

Acquisition-related amortization (2a)

(16,465) (15,976) (49,775) (47,971)

Adjusted Operating (Loss) Income $ (196,693) $ 133,074 $ (576,372) $ 415,789

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

Three Months Ended September 30, 2020

Solutions Corporate Total

Operating loss $ (202,553) $ (151,411)

Selling, general and administrative 55,870 10,501 53,255 119,626

Technology costs 232,666 25,332 18,364 276,362

Cost of revenue adjustments:

Depreciation and amortization (2)

6,868 1,283 1,113 9,264

Restructuring and other costs (8)

— — (237) (237)

Amortization of upfront incentive consideration (3)

19,444 — — 19,444

Stock-based compensation — — 1,422 1,422

Adjusted Gross Profit (Loss) 168,971 24,507 (646) 192,832

Selling, general and administrative (55,870) (10,501) (53,255) (119,626)

Technology costs (232,666) (25,332) (18,364) (276,362)

Equity method loss (911) (686)

Selling, general and administrative and technology costs adjustments:

Depreciation and amortization (2)

Acquisition-related amortization (2a)

16,221 16,801

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Stock-based compensation 24,426 17,577

Adjusted EBITDA (65,550) (2,222) (36,598) (104,370)

Depreciation and amortization (2)

61,343 10,387 17,614 89,344

Amortization of upfront incentive consideration (3)

Adjusted Operating Loss $ (166,502) $ (72,870)

Loss from continuing operations $ (259,931) $ (209,771)

Depreciation and amortization of property and equipment (2b)

48,592 69,513

Amortization of capitalized implementation costs (2c)

Acquisition-related amortization (2a)

16,221 16,801

Adjusted Operating Loss $ (146,337) $ (12,609) $ (37,747) $ (196,693)

Three Months Ended September 30, 2019

Solutions Hospitality

Solutions Corporate Total

Operating income (loss) $ 182,555 $ (4,008) $ (65,087) $ 113,460

Selling, general and administrative 74,227 10,061 44,503 128,791

Technology costs 276,572 28,322 17,669 322,563

Cost of revenue adjustments:

Depreciation and amortization (2)

Restructuring and other costs (4)

(5,135) 25,281

Amortization of upfront incentive consideration (3)

Interest expense, net 64,101 37,442

Other, net (3)

(11,631) 47,486

Acquisition-related costs (5)

Litigation costs, net (6)

Stock-based compensation 24,426 17,577

Adjusted Gross Profit (Loss) 561,372 35,762 (508) 596,626

Selling, general and administrative (74,227) (10,061) (44,503) (128,791)

Technology costs (276,572) (28,322) (17,669) (322,563)

Equity method income 1,027 — — 1,027

Selling, general and administrative and technology costs adjustments:

Depreciation and amortization (2)

Provision for income taxes 3,997 (27,254)

Adjusted EBITDA $ (109,500) $ 6,190

The following tables set forth the reconciliation of Adjusted Operating Loss to operating loss in our statement of operations and Adjusted EBITDA to loss from continuing operations in our statement of operations by business segment (in thousands):

Three Months Ended March 31, 2021

Travel Solutions Hospitality Solutions Corporate Total

Adjusted Operating Loss $ (106,133) $ (13,587) $ (46,782) $ (166,502)

Equity method loss (911) — — (911)

Acquisition-related amortization (2a)

— — 16,221 16,221

Acquisition-related costs (6)

Restructuring and other costs (4)

— — (5,135) (5,135)

Acquisition-related costs (5)

Litigation costs, net (6)

— — (24,179) (24,179)

Stock-based compensation — — 24,426 24,426

Operating loss $ (105,222) $ (13,587) $ (83,744) $ (202,553)

Adjusted EBITDA $ (57,363) $ (5,660) $ (46,477) $ (109,500)

Depreciation and amortization (2)

Depreciation and amortization of property and equipment (2b)

41,372 6,915 305 48,592

Amortization of upfront incentive consideration (3)

Amortization of capitalized implementation costs (2c)

7,398 1,012 — 8,410

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— — 16,221 16,221

Adjusted Operating Income (Loss) $ 183,582 $ (4,008) $ (46,500) $ 133,074

Nine Months Ended September 30, 2020

Travel Solutions Hospitality Solutions Corporate Total

Operating loss $ (406,939) $ (48,475) $ (313,116) $ (768,530)

Selling, general and administrative 217,103 31,498 198,410 447,011

Technology costs 724,609 74,954 84,274 883,837

Cost of revenue adjustments:

Depreciation and amortization (2)

21,363 3,613 2,870 27,846

Restructuring and other costs (4)

— — (5,135) (5,135)

Amortization of upfront incentive consideration (3)

56,733 — — 56,733

Acquisition-related costs (5)

Litigation costs, net (6)

Stock-based compensation — — 24,426 24,426

Adjusted Gross Profit (Loss) 612,869 61,590 (2,402) 672,057

Selling, general and administrative (217,103) (31,498) (198,410) (447,011)

Technology costs (724,609) (74,954) (84,274) (883,837)

Equity method loss (911) — — (911)

Selling, general and administrative and technology costs adjustments:

Depreciation and amortization (2)

Operating loss $ (105,222) $ (13,587) $ (83,744) $ (202,553)

Interest expense, net (64,101)

Other, net (3)

Equity method loss (911)

Provision for income taxes (3,997)

Loss from continuing operations $ (259,931)

Three Months Ended March 31, 2020

Travel Solutions Hospitality Solutions Corporate Total

Adjusted Operating Loss $ (10,607) $ (16,457) $ (45,806) $ (72,870)

Equity method loss (686) — — (686)

Acquisition-related amortization (2a)

— — 16,801 16,801

6 unchanged sentences

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

Operating loss $ (9,921) $ (16,457) $ (125,033) $ (151,411)

Adjusted EBITDA $ 55,608 $ (4,855) $ (44,563) $ 6,190

Depreciation and amortization (2)

Depreciation and amortization of property and equipment (2b)

57,760 10,510 1,243 69,513

Amortization of upfront incentive consideration (3)

Amortization of capitalized implementation costs (2c)

8,455 1,092 — 9,547

1 unchanged sentence

— — 16,801 16,801

Adjusted Operating Loss $ (408,584) $ (48,475) $ (119,313) $ (576,372)

Nine Months Ended September 30, 2019

Travel Solutions Hospitality Solutions Corporate Total

Operating income (loss) $ 572,662 $ (15,471) $ (251,411) $ 305,780

Selling, general and administrative 221,549 32,070 189,050 442,669

Technology costs 826,680 83,969 53,748 964,397

Cost of revenue adjustments:

Depreciation and amortization (2)

22,988 4,108 2,609 29,705

Amortization of upfront incentive consideration (3)

59,825 — — 59,825

Stock-based compensation — — 4,758 4,758

Adjusted Gross Profit (Loss) 1,703,704 104,676 (1,246) 1,807,134

Selling, general and administrative (221,549) (32,070) (189,050) (442,669)

Technology costs (826,680) (83,969) (53,748) (964,397)

Equity method income 1,973 — — 1,973

Selling, general and administrative and technology costs adjustments:

Depreciation and amortization (2)

Restructuring and other costs (4)

— — 25,281 25,281

4 unchanged sentences

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

Adjusted EBITDA 854,809 24,497 (139,758) 739,548

Depreciation and amortization (2)

220,349 39,968 51,588 311,905

Amortization of upfront incentive consideration (3)

59,825 — — 59,825

Acquisition-related amortization (2a)

— — (47,971) (47,971)

Adjusted Operating Income (Loss) $ 574,635 $ (15,471) $ (143,375) $ 415,789

Equity method loss (686) — — (686)

Operating loss $ (9,921) $ (16,457) $ (125,033) $ (151,411)

Interest expense, net (37,442)

Other, net (3)

Equity method loss (686)

Provision for income taxes 27,254

Loss from continuing operations $ (209,771)

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

Nine Months Ended September 30,

Three Months Ended March 31,

Cash (used in) provided by operating activities $ (197,403) $ 40,431

Cash used in investing activities (52,634) (108,482)

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

Nine Months Ended September 30,

Cash provided by (used in) investing activities 8,405 (32,850)

Cash (used in) provided by financing activities (24,221) 238,146

Three Months Ended March 31,

Cash (used in) provided by operating activities $ (197,403) $ 40,431

8 unchanged sentences

(c) Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model.

(3) Our Travel Solutions business at times provides upfront incentive consideration to travel agency subscribers at the inception or modification of a service contract, which are capitalized and amortized to cost of revenue over an average expected life of the service contract, generally over three to ten years.

This consideration is made with the objective of increasing the number of clients or to ensure or improve customer loyalty.

These service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed

the cost of the incentive consideration provided up front.

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

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

("Farelogix") and a $14 million pension settlement charge recorded in the third quarter of 2020, as well as foreign exchange gains and losses related to the remeasurement of foreign currency denominated balances included in our consolidated balance sheets into the relevant functional currency.

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

Accumulated Other Comprehensive Loss for discussion of the pension settlement.

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

Contingencies , to our consolidated financial statements.

(3) Other, net includes a $15 million gain on sale of equity securities during the three months ended March 31, 2021 and a $46 million charge related to termination payments incurred in the first quarter of 2020 in connection with the now-terminated acquisition of Farelogix Inc.

("Farelogix").

In addition, all periods presented include foreign exchange gains and losses related to the remeasurement of foreign currency denominated balances included in our consolidated balance sheets into the relevant functional currency.

(4) Restructuring and other costs represents charges, and adjustments to those charges, associated with business restructuring and associated changes as well as other measures to support the new organizational structure and to respond to the impacts of the COVID-19 pandemic on our business, facilities and cost structure.

Restructuring Activities to our consolidated financial statements for further details.

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

Acquisitions.

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

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

Restructuring Activities for further details.

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

Contingencies, to our consolidated financial statements.

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

Results of Operations

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

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

2020 2019 2020 2019

Three Months Ended March 31,

(Amounts in thousands)

Revenue $ 327,484 $ 658,977

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

Cost of revenue, excluding technology costs 146,761 281,415

Technology costs 252,663 325,372

Selling, general and administrative 130,613 203,601

Operating (loss) income (233,049) 113,460 (768,530) 305,780

Operating loss (202,553) (151,411)

Interest expense, net (64,101) (37,442)

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

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

Other expense, net (18,431) (1,769) (72,015) (6,118)

(Loss) income from continuing operations before income taxes (329,924) 72,975 (1,016,197) 184,271

Equity method loss (911) (686)

Other, net 11,631 (47,486)

Loss from continuing operations before income taxes (255,934) (237,025)

Provision for income taxes 3,997 (27,254)

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

Three Months Ended September 30, 2020 and 2019

Three Months Ended September 30,

Loss from continuing operations $ (259,931) $ (209,771)

Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31,

2021 2020 Change

5 unchanged sentences

Total revenue $ 327,484 $ 658,977 $ (331,493) (50) %

Travel Solutions— Revenue decreased $682 million, or 74%, for the three months ended September 30, 2020 compared to the same period in the prior year, primarily due to:

• a $569 million, or 84%, decrease in transaction-based distribution revenue primarily due to a 86% decrease in Direct Billable Bookings to 20 million resulting from lower transaction volume as the result of the COVID-19 pandemic, partially offset by $18 million of revenue recognized in the third quarter of 2020 resulting from less cancellation activity on bookings scheduled to depart during the third quarter than estimated as of June 30, 2020;

• a $113 million decrease in IT solutions revenue consisting of a $84 million, or 65%, decrease in reservation revenue primarily due to the impact of the COVID-19 pandemic on our existing customer base.

This decrease was partially offset by an increase of $3 million driven by the acquisition of Radixx in October 2019.

Passengers Boarded, inclusive of Radixx, decreased by 70% to 57 million for the three months ended September 30, 2020.

Travel Solutions— Revenue decreased $319 million, or 52%, for the three months ended March 31, 2021 compared to the same period in the prior year, primarily due to:

• a $243 million, or 62%, decrease in transaction-based distribution revenue due to a 55% decrease in Direct Billable Bookings to 39 million primarily as a result of reduced travel caused by the COVID-19 pandemic and unfavorable rate impacts as domestic bookings continue to exceed international bookings;

• a $76 million decrease in IT solutions revenue consisting of a $37 million, or 48%, decrease in reservation revenue primarily due to a 55% decrease in Passengers Boarded to 75 million as a result of reduced travel caused by the COVID-19 pandemic, partially offset by a rate increase due to revenue that does not fluctuate with our volumes.

Additionally, commercial and operations revenue decreased $39 million primarily due to the impact of the COVID-19 pandemic on our existing customer base.

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

The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 37% to 19 million, as a result of the COVID-19 pandemic.

Cost of Revenue

Three Months Ended September 30,

Hospitality Solutions— Revenue decreased $17 million, or 29%, for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 16% to 18 million, as a result of the COVID-19 pandemic and a decrease of $5 million in DX revenue.

Cost of revenue, excluding technology costs

Three Months Ended March 31,

2021 2020 Change

3 unchanged sentences

Eliminations (3,606) (7,847) 4,241 54 %

Total segment cost of revenue 84,886 387,066 (302,180) (78) %

Total segment cost of revenue, excluding technology costs 149,313 284,594 (135,281) (48) %

Corporate (12,685) (12,355) (330) 3 %

Depreciation and amortization 10,133 9,176 957 10 %

Amortization of upfront incentive consideration 19,444 20,852 (1,408) (7) %

Total cost of revenue $ 115,426 $ 419,385 $ (303,959) (72) %

Travel Solutions— Cost of revenue decreased $290 million, or 81%, for the three months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a $281 million decline in incentive consideration in all regions due to lower transaction volume as the result of the COVID-19 pandemic, as well as a $8 million reduction in labor and professional services costs in connection with our cost reduction measures.

Hospitality Solutions— Cost of revenue decreased $19 million, or 48%, for the three months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a $15 million reduction in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased $1 million for the three months ended September 30, 2020 compared to the same period in the prior year.

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

Technology Costs

Three Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Total cost of revenue, excluding technology costs $ 146,761 $ 281,415 $ (134,654) (48) %

Travel Solutions— Cost of revenue decreased $124 million, or 48%, for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease was primarily the result of a $118 million decline in incentive consideration in all regions due to lower transaction volume as a result of the COVID-19 pandemic, as well as a $4 million reduction in labor and professional services costs in connection with our cost reduction measures implemented in 2020.

Hospitality Solutions— Cost of revenue decreased $15 million, or 44%, for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease was primarily driven by a $12 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.

Depreciation and amortization —Depreciation and amortization increased $1 million, or 10%, for the three months ended March 31, 2021 compared to the same period in the prior year due to customer implementations.

Technology Costs

Technology costs decreased $46 million, or 14%, for the three months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by reductions impacting our Travel Solutions and Hospitality Solutions segments, including a $25 million decline in technology costs associated with lower transaction volumes resulting from the COVID-19 pandemic, a $15 million decrease in depreciation and amortization due to a change in the mix of our technology spend in 2019 resulting in less capitalized internal use software, and a reduction in technology labor of $17 million in connection with our cost reduction measures.

This decrease was partially offset by a continued decline in the capitalization mix of our technology spend as we implement opensource and cloud-based solutions, resulting in a $9 million increase in labor costs.

Corporate technology costs increased due to a restructuring charge of $1 million for severance benefits.

Selling, General and Administrative Expenses

Three Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Selling, general and administrative $ 119,626 $ 128,791 $ (9,165) (7) %

Selling, general and administrative expenses decreased $9 million, or 7%, for the three months ended September 30, 2020 compared to the same period in the prior year, primarily driven by a $24 million decrease in labor and professional services costs in connection with our cost reduction measures, a $9 million decrease in legal costs associated with the now-terminated acquisition of Farelogix, a $3 million decrease in other litigation costs, and a reduction in other costs due to our expense management initiatives.

The decrease is substantially offset by an increase of $32 million due to the reversal of a previously accrued loss in the prior year related to the US Airways legal matter and an $8 million increase in the provision for expected credit losses, primarily related to fully reserving for aged balances related to certain customers and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard.

Interest expense, net

Three Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Interest expense, net $ 67,651 $ 39,743 $ 27,908 70 %

Interest expense increased $28 million during the three months ended September 30, 2020 compared to the same period in the prior year primarily due to additional borrowings under the 9.250% senior secured notes due 2025 and the 4.000% senior exchangeable notes due 2025 entered into during the second quarter of 2020 and the 7.375% senior secured notes due 2025 entered into in the third quarter of 2020.

Loss on Extinguishment of Debt

Three Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

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

** not meaningful

As a result of the debt refinancing in the third quarter of 2020, we recognized a loss on extinguishment of debt of $10 million during the three months ended September 30, 2020 which consisted of a redemption premium of $7 million and the write-off of unamortized debt issuance costs of $3 million.

Other expense, net

Three Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Other expense, net $ 18,431 $ 1,769 $ 16,662 **

** not meaningful

Other expense, net increased $17 million for the three months ended September 30, 2020 compared to the same period in the prior year primarily due to a pension plan settlement charge of $14 million recognized in the third quarter of 2020 as well as realized and unrealized foreign currency exchange losses.

Provision for Income Taxes

Three Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Provision for income taxes $ (20,364) $ 7,795 $ (28,159) (361) %

Our effective tax rates for the three months ended September 30, 2020 and 2019 were 6% and 11%, respectively.

The decrease in the effective tax rate for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to a $45 million valuation allowance recorded on tax losses generated in the current quarter related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective three month periods.

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

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

Nine Months Ended September 30, 2020 and 2019

Nine Months Ended September 30,

Three Months Ended March 31,

2021 2020 Change

2 unchanged sentences

Hospitality Solutions 22,420 26,503 (4,083) (15) %

Total segment revenue 1,034,031 3,063,916 (2,029,885) (66) %

Eliminations (13,645) (30,350) 16,705 55 %

Total revenue $ 1,020,386 $ 3,033,566 $ (2,013,180) (66) %

Travel Solutions— Revenue decreased $1,942 million, or 68%, for the nine months ended September 30, 2020 compared to the same period in the prior year, primarily due to:

• a $1,642 million, or 78%, decrease in transaction-based distribution revenue primarily due to a 78% decrease in Direct Billable Bookings to 98 million resulting from lower transaction volume as the result of the COVID-19 pandemic;

• a $300 million decrease in IT solutions revenue consisting of a $209 million, or 55%, decrease in reservation revenue primarily due to the impact of the COVID-19 pandemic on our existing customer base and a $28 million decrease in revenue compared to the same period in the prior year due to the transition away from our services by certain customers and Jet Airways' insolvency in April 2019.

This decrease was partially offset by an increase of $12 million driven by the acquisition of Radixx in October 2019.

Passengers Boarded, inclusive of Radixx, decreased by 56% to 244 million for the nine months ended September 30, 2020.

Additionally, commercial and operations revenue decreased $103 million primarily due to the impact of the COVID-19 pandemic on our existing customer base.

Hospitality Solutions— Revenue decreased $88 million, or 40%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by a reduction in SynXis Software and Services revenue due to a decrease in transaction volumes of 38% to 51 million, as a result of the COVID-19 pandemic.

Cost of Revenue

Nine Months Ended September 30,

Corporate 16,546 30,474 (13,928) (46) %

Total technology costs $ 252,663 $ 325,372 $ (72,709) (22) %

Travel Solutions— Technology costs decreased $55 million, or 20%, for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease was primarily driven by a decrease in technology labor of $26 million in connection with our cost reduction measures, a decrease in depreciation and amortization of $21 million 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 $16 million associated with lower transaction volumes resulting from the COVID-19 pandemic.

We expect depreciation and amortization expense may be significantly lower in 2021 than in the prior year due to the lower capitalization rate on technology spend.

Hospitality Solutions— Technology costs decreased $4 million, or 15%, for the three months ended March 31, 2021 compared to the same period in the prior year due to a $4 million decline in depreciation and amortization primarily driven by a change in the mix of our technology spend in 2019 resulting in less capitalized internal use software.

Corporate— Technology costs decreased $14 million, or 46%, for the three months ended March 31, 2021 compared to the same period in the prior year primarily due a decline in severance costs of $14 million associated with the reduction of our workforce in 2020.

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

Selling, General and Administrative Expenses

Three Months Ended March 31,

2021 2020 Change

2 unchanged sentences

Hospitality Solutions 12,477 12,819 (342) (3) %

Eliminations (13,645) (30,336) 16,691 55 %

Total segment cost of revenue 345,927 1,225,199 (879,272) (72) %

Corporate 63,176 87,834 (24,658) (28) %

Depreciation and amortization 27,846 29,705 (1,859) (6) %

Amortization of upfront incentive consideration 56,733 59,825 (3,092) (5) %

Total cost of revenue $ 458,068 $ 1,320,720 $ (862,652) (65) %

Travel Solutions— Cost of revenue decreased $851 million, or 75%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily the result of a $821 million decline in incentive consideration in all regions due to lower transaction volumes as a result of the COVID-19 pandemic, as well as a $26 million reduction in labor and professional services costs in connection with our cost reduction measures.

Hospitality Solutions— Cost of revenue decreased $45 million, or 39%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by $38 million reduction in transaction-related costs due to the decline in transaction volume as a result of the COVID-19 pandemic and a reduction in non-development labor costs in connection with our cost reduction measures.

Corporate— Cost of revenue associated with corporate costs increased $22 million, or 360%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

This increase was primarily due to a restructuring charge of $22 million for severance benefits.

Depreciation and amortization— Depreciation and amortization decreased $2 million, or 6%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The decrease is primarily due to customer implementations that became fully amortized during the nine months ended September 30, 2020.

Amortization of upfront incentive consideration— Amortization of upfront incentive consideration decreased $3 million, or 5%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

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

Technology Costs

Nine Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Technology costs $ 883,837 $ 964,397 $ (80,560) (8) %

Technology costs decreased $81 million, or 8%, for the nine months ended September 30, 2020 compared to the same period in the prior year.

The decrease was primarily driven by reductions impacting our Travel Solutions and Hospitality Solutions segments, including a decrease in technology labor of $75 million in connection with our cost reduction measures, a $39 million decline in technology costs associated with lower transaction volumes resulting from the COVID-19 pandemic, and a $33 million decrease in depreciation and amortization primarily due to a change in the mix of our technology spend in 2019 resulting in less capitalized internal use software.

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

Selling, General and Administrative Expenses

Nine Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

Selling, general and administrative $ 447,011 $ 442,669 $ 4,342 1 %

Selling, general and administrative expenses increased $4 million, or 1%, for the nine months ended September 30, 2020 compared to the same period in the prior year, primarily driven by a $42 million increase in the provision for expected credit losses, primarily related to fully reserving for aged balances related to certain customers, an increase in bankruptcy-related reserves, an increase in our forecasted credit losses due to the impact of the COVID-19 pandemic on the global economy and other general increases in bad debt from aging balances as applied under the newly adopted credit loss standard.

The increase is also due to a restructuring charge of $20 million for severance benefits recorded in the current year and an increase of $32 million due to the reversal of a previously accrued loss in the prior year related to the US Airways legal matter.

The increase is substantially offset by a $58 million decrease in labor and professional services costs in connection with our cost reduction measures, a $7 million decrease in legal costs associated with the now-terminated acquisition of Farelogix and a reduction in other costs due to our expense management initiatives.

Total selling, general and administrative expenses $ 130,613 $ 203,601 $ (72,988) (36) %

Travel Solutions— Selling, general and administrative expenses decreased $48 million, or 47%, for the three months ended March 31, 2021 compared to the same period in the prior year.

The decrease is driven by a $40 million decline in the provision for expected credit losses primarily related to fully reserving for aged balances of certain customers in the prior year and an overall improvement in our forecasted credit losses in the current year given the slow global economic recovery from the COVID-19 pandemic.

Additionally, labor and professional services costs declined by $5 million in connection with our cost reduction measures.

Corporate— Selling, general and administrative expenses decreased $25 million, or 28%, due to a $17 million decrease in legal costs associated with the now-terminated acquisition of Farelogix and a $9 million decrease in severance costs associated with the reduction of our workforce in 2020.

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

Interest expense, net

Nine Months Ended September 30,

Three Months Ended March 31,

2021 2020 Change

1 unchanged sentence

Interest expense, net $ 64,101 $ 37,442 $ 26,659 71 %

Interest expense increased $46 million during the nine months ended September 30, 2020 compared to the same period in the prior year primarily due to additional borrowings under the 9.250% senior secured notes due 2025 and the 4.000% senior exchangeable notes due 2025 entered into during the second quarter of 2020 and the 7.375% senior secured notes due 2025 entered into in the third quarter of 2020.

Loss on Extinguishment of Debt

Nine Months Ended September 30,

2020 2019 Change

(Amounts in thousands)

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

** not meaningful

As a result of the debt refinancing in the third quarter of 2020, we recognized a loss on extinguishment of debt of $10 million during the nine months ended September 30, 2020 which consisted of a redemption premium of $7 million and the write-off of unamortized debt issuance costs of $3 million.

Other expense, net

Nine Months Ended September 30,

Interest expense increased $27 million, or 71% during the three months ended March 31, 2021 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.

We expect interest expense may be significantly higher in 2021 than in the prior year due to these changes to our capital structure implemented during 2020.

Three Months Ended March 31,

2021 2020 Change

(Amounts in thousands)

Other expense, net $ 72,015 $ 6,118 $ 65,897 **

Other, net $ (11,631) $ 47,486 $ (59,117) **

** Not meaningful

Other expense, net increased $66 million for the nine months ended September 30, 2020 compared to the same period in the prior year primarily due to a $46 million charge related to termination payments in connection with our proposed acquisition of Farelogix, a pension plan settlement charge of $14 million, and realized and unrealized foreign currency exchange losses.

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

Acquisitions for further detail regarding the Farelogix acquisition.

Other, net decreased $59 million for the three months ended March 31, 2021 compared to the same period in the prior year primarily due to a $46 million charge related to the termination payments in connection with our proposed acquisition of Farelogix recorded in the first quarter of 2020 and a $15 million gain on sale in investment recorded in the first quarter of 2021 as well as realized and unrealized foreign currency exchange gains.

Provision for Income Taxes

Nine Months Ended September 30,

Three Months Ended March 31,

2021 2020 Change

1 unchanged sentence

Provision for income taxes $ 3,997 $ (27,254) $ 31,251 **

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

The decrease in the effective tax rate for the nine months ended September 30, 2020 as compared to the same period in 2019 was primarily due to a $139 million valuation allowance recorded on tax losses generated in the current tax year related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective nine month periods.

** Not meaningful

For the three months ended March 31, 2021, we recognized $4 million income tax expense, representing a negative effective tax rate of 2%, compared to an income tax benefit of $27 million, representing an effective tax rate of 11% for the three months ended March 31, 2020.

The decrease in the effective tax rate for the three months ended March 31, 2021 as compared to the same period in 2020 was primarily due to a $43 million valuation allowance generated in the current quarter related to the impact of COVID-19 on our results of operations and various discrete items recorded in each of the respective three month periods.

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

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

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

Liquidity and Capital Resources

Our principal sources of liquidity are:

(i) cash flows from operations, (ii) cash and cash equivalents and (iii) borrowings under our $400 million revolving credit facility ("Revolver") (see “—Senior Secured Credit Facilities”).

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

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

September 30, 2020 December 31, 2019

Our current principal source of liquidity is our cash and cash equivalents on hand.

As of March 31, 2021 and December 31, 2020, our cash and cash equivalents, Revolver and outstanding letters of credit were as follows (in thousands):

March 31, 2021 December 31, 2020

Cash and cash equivalents $ 1,284,918 $ 1,499,665

7 unchanged sentences

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

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

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

federal NOLs and a portion of our available U.S.

We held no short-term investments as of March 31, 2021 and December 31, 2020.

As of December 31, 2020, we have significant U.S.

federal NOLs and U.S.

federal tax credits.

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

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

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

federal cash tax payer for 2021.

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

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

Additionally, during the third quarter of 2020, we completed equity offerings which resulted in net proceeds of $598 million, extended the maturity of our Term Loan A and Revolver and used proceeds from newly issued notes due in September 2025 to pay down Term Loan A and notes due in April 2023.

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

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

Given the uncertainties surrounding the duration and effects of COVID-19 on transaction volumes in the global travel industry, particularly air travel transaction volumes, including from airlines’ insolvency or suspension of service or aircraft groundings, we cannot provide assurance that the assumptions used to estimate our liquidity requirements will be accurate.

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

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

As previously disclosed, we responded with measures to increase our cash position during 2020, including the suspension of quarterly cash dividends on our common stock, effective with respect to the dividends occurring after the March 30, 2020 payment 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.

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

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

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

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

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

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

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

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

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

We had $375 million outstanding under the Revolver as of March 31, 2021 and December 31, 2020.

We had outstanding letters of credit totaling $10 million as of March 31, 2021 and December 31, 2020 which reduced our overall credit capacity under the Revolver.

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

On August 27, 2020, Sabre GLBL entered into an amendment to the Amended and Restated Credit Agreement which extended the maturity of the Revolver from July 1, 2022 to August 16, 2023, subject to certain "springing" maturity conditions that may extend the maturity to February 22, 2024 at the latest and extended the maturity of the remaining balance of Term Loan A from July 1, 2022 to August 16, 2023, subject to certain "springing" maturity conditions that may extend the maturity to February 22, 2024 at the latest.

Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

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See “Risk Factors—The ongoing impact of the COVID-19 outbreak on our business and results of operations is highly uncertain" and "—We may require more cash than we generate in our operating activities, and additional funding on reasonable terms or at all may not be available.”

Given the impacts of COVID-19 as discussed above, we have currently suspended share repurchases under our Share Repurchase Program as well as the payment of quarterly cash dividends on our common stock, effective with respect to the dividends occurring after the March 30, 2020 payment.

See “—Recent Events Impacting our Liquidity and Capital Resources.” We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a material negative impact on our financial results and liquidity, and this negative impact may continue well beyond the containment of the outbreak.

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

On an ongoing basis, we will evaluate and consider strategic acquisitions, divestitures, joint ventures, equity method investments, repurchasing shares of our common stock (including pursuant to our multi-year $500 million Share Repurchase Program) or our outstanding debt obligations in open market or in privately negotiated transactions, as well as other transactions we believe may create stockholder value or enhance financial performance.

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Recent Events Impacting Our Liquidity and Capital Resources

Debt Agreements

On August 27, 2020, Sabre GLBL entered into a new debt agreement consisting of $850 million aggregate principal amount of the September 2025 Notes.

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

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

The September 2025 Notes mature on September 1, 2025.

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

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

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

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

Debt for further information.

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

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

Debt for further information.

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

The Secured Notes bear interest at a rate of

9.250% per annum and interest payments are due semi-annually on April 15 and October 15 of each year, beginning with October 15, 2020.

The Secured Notes mature on April 15, 2025.

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

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

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

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

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

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

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

Equity Offerings

On August 24, 2020, we completed concurrent offerings of 3,340,000 shares of our 6.50% Series A Mandatory Convertible Preferred Stock (the "Preferred Stock") which generated net proceeds of approximately $323 million and 41,071,429 shares of common stock which generated net proceeds of approximately $275 million.

Interest Payments

As a result of 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, interest expense increased $27 million during the three months ended March 31, 2021 compared to the same period in the prior year and will continue to remain a significant use of cash during 2021.

The Preferred Stock accumulates cumulative dividends at a rate per annum equal to 6.50% and dividends are payable when, as and if declared by our board of directors, out of funds legally available for their payment to the extent paid in cash, quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, beginning on December 1, 2020 and ending on, and including, September 1, 2023.

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

We recorded $2 million of accrued preferred stock dividends in our consolidated balance sheet as of September 30, 2020.

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

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

We recorded $5 million of accrued preferred stock dividends in our consolidated results of operations for the three months ended March 31, 2021.

During the three months ended March 31, 2021, we paid cash dividends on our preferred stock of $5 million.

On April 28, 2021, the Board of Directors declared a dividend of $1.625 per share on Preferred Stock payable on June 1, 2021 to holders of record of the Preferred Stock on May 15, 2021.

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

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

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

For the three months ended March 31, 2021, we did not repurchase any shares pursuant to the Share Repurchase Program.

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

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

Cost Reduction Efforts

Given the market conditions as the result of COVID-19, we have identified and are in the process of removing costs from the business in 2020.

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

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

Approximately $287 million remains authorized for repurchases under the Share Repurchase Program as of March 31, 2021.

Senior Secured Credit Facilities

On August 23, 2017, Sabre GLBL entered into a Fourth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement, Term Loan A Refinancing Amendment to our Amended and Restated Credit Agreement, and Second Revolving Facility Refinancing Amendment to our Amended and Restated Credit Agreement (the “2017 Refinancing”).

The 2017 Refinancing included a $400 million Revolver as well as the application of the proceeds of the approximately $1,891 million incremental Term Loan B facility (“Term Loan B”) and $570 million Term Loan A facility (“Term Loan A”).

The Revolver and the Term Loan A mature on July 1, 2022.

The applicable margins for the Term Loan A and the Revolver were reduced to (i) between 2.50% and 1.75% per annum for Eurocurrency rate loans and (ii) between 1.50% and 0.75% per annum for base rate loans, in each case with the applicable margin for any quarter reduced by 25 basis points (up to 75 basis points total) if the Senior Secured First-Lien Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than 3.75 to 1.0, 3.00

to 1.0, or 2.25 to 1.0, respectively.

Term Loan B matures on February 22, 2024.

The applicable margins for the Term Loan B were reduced to 2.25% per annum for Eurocurrency rate loans and 1.25% per annum for base rate loans.

On March 2, 2018, Sabre GLBL entered into a Fifth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement to refinance and modify the terms of the Term Loan B, resulting in a reduction of the applicable margins for the Term Loan B to 2.00% per annum for Eurocurrency rate loans and 1.00% per annum for base rate loans.

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

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

and extended the maturity of the Term Loan A from July 1, 2022 to August 16, 2023 at the earliest and February 22, 2024 at the latest, depending on certain "springing" maturity conditions as described in the Term A Loan Extension Amendment.

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

The 2017 Refinancing included a $400 million revolving credit facility ("Revolver") as well as the application of the proceeds of the approximately $1,891 million incremental Term Loan B facility (“Term Loan B”) and $570 million Term Loan A facility (“Term Loan A”).

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

In addition 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 $300 million on a monthly basis, which was lowered in December 2020 from $450 million.

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

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

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

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.

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 are 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 rate, respectively.

The net proceeds of $623 million from the issuance, net of underwriting fees and commissions, 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 a Pro Rata Amendment and the

Refinancing Amendment which reduced the minimum liquidity requirement to $300 million.

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

We recognized a loss on extinguishment of debt of $11 million during the year ended December 31, 2020 in connection with these transactions, which consisted of a redemption premium of $6 million and the write-off of unamortized debt issuance costs of $5 million.

Under the Amended and Restated Credit Agreement, the loan parties are subject to certain customary non-financial covenants, including certain restrictions on incurring certain types of indebtedness, creation of liens on certain assets, making of certain investments, and payment of dividends, as well as a maximum leverage ratio.

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

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

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

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

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

However, under the terms of the Amended and Restated Credit Agreement, our Total Net Leverage Ratio requirement may be suspended for a limited time if a “Material Travel Event Disruption” has occurred.

“Material Travel Event Disruption,” as defined in the Amended and Restated Credit Agreement, means a decrease of 10% or more has occurred in any given calendar month in the number of “domestic revenue passenger enplanements” as a result of, or in connection with, a Travel Event (as defined in the Amended and Restated Credit Agreement) when compared to the number of “domestic revenue passenger enplanements” 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.

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

The capacity reductions by domestic airlines in response to the COVID-19 outbreak and related decreases in domestic passenger enplanements, and the sharp decline in GDS bookings, has led to a finding that a Material Travel Event Disruption occurred in the first quarter of 2021.

As such, the leverage ratio covenant has been suspended for the first and second quarters of 2021.

Based on industry forecasts for COVID-19 recovery, we would expect to remain under covenant suspension through the remainder of 2021 and until such time that domestic passenger enplanements reach at least 90% of pre-COVID-19 levels.

As of March 31, 2021, we are in compliance with all covenants not suspended under the terms of the Amended and Restated Credit Agreement and with the additional covenants of the 2020 Refinancing.

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

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We are further required to pay down the term loan with proceeds from certain asset sales or borrowings as defined in the Amended and Restated Credit Agreement.

Tax Receivable Agreement

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

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

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

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

Nine Months Ended September 30,

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, and subsequently extended the phase-out date to June 30, 2023.

If a published U.S.

dollar LIBOR rate is unavailable, the interest rates on our debt indexed to LIBOR will be determined using various alternative methods set forth in our Amended and Restated Credit Agreement, any of which could result in interest obligations that are more than or that do not otherwise correlate over time with the payments that would have been made on this debt if U.S.

dollar LIBOR were available in its current form.

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.

Three Months Ended March 31,

(Amounts in thousands)

Cash (used in) provided by operating activities $ (197,403) $ 40,431

Cash used in investing activities (52,634) (108,482)

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

Cash provided by (used in) investing activities 8,405 (32,850)

Cash (used in) provided by financing activities (24,221) 238,146

Cash used in discontinued operations (281) (997)

Effect of exchange rate changes on cash and cash equivalents (1,247) 3,566

Increase (decrease) in cash and cash equivalents $ 1,232,176 $ (35,837)

(Decrease) increase in cash and cash equivalents $ (214,747) $ 248,296

Operating Activities

Cash used in operating activities for the nine months ended September 30, 2020 was $587 million and consisted of net loss from continuing operations of $963 million, offset by adjustments for non-cash and other items of $443 million, and a decrease in cash from changes in operating assets and liabilities of $67 million.

The adjustments for non-cash and other items consist primarily of $279 million of depreciation and amortization, $58 million in allowance for credit losses, $57 million in amortization of upfront incentive consideration, $45 million stock-based compensation expense, $25 million in acquisition termination fees, a $14 million pension settlement charge, $13 million in amortization of debt discount and debt issuance costs, and a $10 million loss on debt extinguishment, partially offset by $67 million in deferred income taxes.

The decrease in cash from changes in operating assets and liabilities of $67 million was primarily the result of a decrease of $264 million in accounts payable due to reductions in incentive fees due to the impact of COVID-19 on our volumes and the payment of the remaining $21 million associated with termination fees for the Farelogix transaction, $26 million used for upfront incentive fees due to agencies, and $11 million in capitalized implementation costs.

These decreases were offset by a $182 million decrease in accounts receivable due to the impact of COVID-19 on our revenue and billings to customers, a $13 million decrease in other assets, an increase of $28 million in deferred revenue, and a $13 million increase in accrued compensation and related benefits.

Cash provided by operating activities for the nine months ended September 30, 2019 was $424 million and consisted of net income from continuing operations of $152 million, adjustments for non-cash and other items of $415 million and a decrease in cash from changes in operating assets and liabilities of $143 million.

The adjustments for non-cash and other items consist primarily of $312 million of depreciation and amortization, $60 million in amortization of upfront incentive consideration, $51 million stock-based compensation expense, $17 million in allowance for doubtful accounts, partially offset by $27 million in deferred income taxes.

The decrease in cash from changes in operating assets and liabilities of $143 million was primarily the result of a $67 million increase in accounts receivable primarily due to seasonality, $65 million used for upfront incentive consideration, $26 million used for accrued compensation and related benefits, $20 million used for capitalized implementation costs, $9 million increase in other prepaid expenses and other current assets, and a $3 million decrease in deferred revenue.

These decreases were partially offset by an increase of $35 million in accounts payable and other accrued liabilities due to seasonality in incentives and business growth, and a $13 million decrease in other assets.

Cash used in operating activities totaled $197 million for the three months ended March 31, 2021.

The $238 million decrease in operating cash flow from the same period in the prior year was primarily due to the impact of COVID-19 on the travel industry and on our results of operations, additional interest payments of $16 million resulting from debt refinancing activities during 2020, and severance payments of $8 million during the three months ended March 31, 2021 related to restructuring activities initiated in 2020.

This decrease in operating cash flow was partially offset by acquisition termination fees of $21 million paid in the first quarter of 2020 in connection with the now-terminated agreement to acquire Farelogix and a $20 million decrease in upfront incentive consideration payments.

Cash provided by operating activities totaled $40 million for the three months ended March 31, 2020.

The $112 million decrease in cash flow provided by operating activities from the same period in the prior year was primarily due to the impact of COVID-19 on the travel industry and on our results of operations and acquisition termination fees of $21 million paid in the first quarter of 2020 in connection with the now-terminated agreement to acquire Farelogix.

Investing Activities

For the nine months ended September 30, 2020, we used cash of $48 million on capital expenditures, including $32 million related to software developed for internal use.

For the nine months ended September 30, 2019, we used cash of $108 million in investing activities, including $70 million related to software developed for internal use.

Additionally, we used cash of $16 million as an advance of purchase price to Farelogix for certain attorneys' fees.

See "Liquidity Outlook" for additional information on the now-terminated Farelogix acquisition agreement.

For the three months ended March 31, 2021, we received proceeds of $15 million from the sale of an investment, partially offset by $6 million of cash used on capital expenditures related to software developed for internal use.

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

Financing Activities

For the nine months ended September 30, 2020, financing activities provided $1,874 million.

For the three months ended March 31, 2021, financing activities used $24 million.

Significant highlights of our financing activities include:

• proceeds from borrowings under the Notes of $1,970 million;

• proceeds from issuance of stock of $598 million;

• net payments of $12 million from the settlement of employee stock-option awards;

• payment of $6 million on Term Loan B and Other Term Loan B;

• payment of $5 million in dividends on our preferred stock.

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

Significant highlights of our financing activities include:

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

• payment of $530 million on 5.375% senior secured notes due 2023;

• payment of $365 million on Term Loan A and Term Loan B;

• fourth and final annual payment on the TRA liability for $72 million, excluding interest;

• payment of $54 million on debt issuance costs;

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

• payment of $19 million on our Term Loan A and Term Loan B;

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

• payment of $2 million on our capital leases.

For the nine months ended September 30, 2019, we used $351 million for financing activities.

Significant highlights of our financing activities include:

• payment of $115 million in dividends on our common stock;

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

• payment of $45 million on our revolving credit facility and $43 million on our Term Loan A and Term Loan B;

• proceeds of $45 million from borrowings under our Revolver;

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

• net payments of $6 million from the settlement of employee stock-based awards, including $7 million in proceeds from the exercise of employee stock options, net of payments for $13 million in income tax withholdings associated with the settlement of employee stock-based awards.

Contractual Obligations

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

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

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

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

There were no material changes to our future minimum contractual obligations since December 31, 2020 as previously disclosed in our Annual Report on Form 10-K filed with the SEC on February 25, 2021.

Off Balance Sheet Arrangements

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

We had no off balance sheet arrangements during the three months ended March 31, 2021 and year ended December 31, 2020.

Recent Accounting Pronouncements

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For a discussion of the accounting policies involving material estimates and assumptions that we believe are most critical to the preparation of our financial statements, how we apply such policies and how results differing from our estimates and assumptions would affect the amounts presented in our financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in our Annual Report on Form 10-K filed with the SEC on February 25, 2021.

Since the date of the annual report on Form 10-K filed with the SEC on February 26, 2020, there have been no material changes to our critical accounting estimates other than to update the critical accounting estimate disclosures for our allowance for credit losses to align with the adoption of Accounting Standards Codification ("ASC") 326, Credit Impairment.

Allowance for Credit Losses

We develop and document our methodology used in determining the allowance for credit losses at the portfolio segment level.

Within the travel portfolio segment, we identify airlines, hoteliers and travel agencies as each presenting unique risk characteristics associated with historical credit loss patterns unique to each and we determine the adequacy of our allowance for credit loss by assessing the risks and losses inherent in our receivables related to each.

We evaluate the collectability of our receivables based on a combination of factors.

In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, such as bankruptcy filings or failure to pay amounts due to us or others, we specifically reserve for bad debts against amounts due to reduce the recorded receivable to the amount we reasonably believe will be collected.

For all other customers, we record reserves for receivables, including unbilled receivables and contract assets, based on historical experience and the length of time the receivables are past due.

The estimate of credit losses is developed by analyzing historical twelve-month collection rates and adjusting for current customer-specific factors indicating financial instability and other macroeconomic factors that correlate with the expected collectability of our receivables.

Receivables are considered to be delinquent when contractual payment terms are exceeded.

All receivables aged over twelve months are fully reserved.

Receivables are written off against the allowance when it is probable that all remaining contractual payments will not be collected as evidenced by factors such as the extended age of the balance, the exhaustion of collection efforts, and the lack of ongoing contact or billing with the customer.

Credit Losses for further considerations involved in the development of this estimate.

Since the date of the annual report on Form 10-K filed with the SEC on February 25, 2021, there have been no material changes to our critical accounting estimates.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis