Global Business Travel (GBTG) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2024 ITEM 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements of Global Business Travel Group, Inc. for the periods ended June 30, 2024, and December 31, 2023, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and changes in shareholders' equity. It also includes detailed notes explaining business operations, accounting policies, debt, equity, and other financial instruments Consolidated Balance Sheets The consolidated balance sheets show a slight increase in total assets and liabilities from December 31, 2023, to June 30, 2024, with cash and cash equivalents increasing and accounts receivable decreasing. Total shareholders' equity also saw a modest increase Consolidated Balance Sheets | Metric | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :-------------------------- | :------------------------- | :----------------------------- | | Cash and cash equivalents | 515 | 476 | | Accounts receivable (net) | 712 | 726 | | Total current assets | 1,448 | 1,360 | | Total assets | 3,782 | 3,751 | | Total current liabilities | 879 | 831 | | Long-term debt, net | 1,358 | 1,355 | | Total liabilities | 2,564 | 2,539 | | Total shareholders' equity | 1,218 | 1,212 | Consolidated Statements of Operations The company reported a significant turnaround in net income for the three months ended June 30, 2024, moving from a loss to a profit, driven by revenue growth and improved operating income. For the six-month period, net income also turned positive from a prior-year loss Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenue | 625 | 592 | 1,235 | 1,170 | | Total operating expenses | 583 | 590 | 1,177 | 1,177 | | Operating income (loss) | 42 | 2 | 58 | (7) | | Net income (loss) | 27 | (55) | 8 | (82) | | Net income (loss) attributable to the Company's Class A stockholders | 26 | (14) | 7 | (16) | | Basic income (loss) per share | 0.06 | (0.23) | 0.01 | (0.27) | | Diluted income (loss) per share | 0.06 | (0.23) | 0.01 | (0.27) | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for the three months ended June 30, 2024, was positive, a significant improvement from a loss in the prior year, primarily due to net income and changes in currency translation adjustments and cash flow hedges Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :------------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income (loss) | 27 | (55) | 8 | (82) | | Other comprehensive (loss) income, net of tax | (4) | 15 | (25) | 11 | | Comprehensive income (loss) | 23 | (40) | (17) | (71) | | Comprehensive income (loss) attributable to the Company's Class A stockholders | 22 | (12) | (18) | (14) | Consolidated Statements of Cash Flows Net cash from operating activities significantly improved for the six months ended June 30, 2024, turning positive from a net use in the prior year, contributing to an overall increase in cash and cash equivalents Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :------------------------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net cash from (used in) operating activities | 122 | (31) | | Net cash used in investing activities | (44) | (64) | | Net cash (used in) from financing activities | (17) | 123 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (9) | 4 | | Net increase in cash, cash equivalents and restricted cash | 52 | 32 | | Cash, cash equivalents and restricted cash, end of period | 541 | 348 | Consolidated Statements of Changes in Total Shareholders' Equity Total shareholders' equity increased from December 31, 2023, to June 30, 2024, primarily due to equity-based compensation and net income, partially offset by other comprehensive losses Total Shareholders' Equity | Metric | December 31, 2023 ($ millions) | June 30, 2024 ($ millions) | | :----------------------------------------- | :----------------------------- | :------------------------- | | Additional paid-in capital | 2,748 | 2,772 | | Accumulated deficit | (1,437) | (1,430) | | Accumulated other comprehensive loss | (103) | (128) | | Total equity of the Company's shareholders | 1,208 | 1,214 | | Total shareholders' equity | 1,212 | 1,218 | - Equity-based compensation contributed $18 million to additional paid-in capital for the six months ended June 30, 2024[12] - Net income of $26 million for the period contributed to the reduction of the accumulated deficit[13] Notes to the Consolidated Financial Statements (Unaudited) These notes provide detailed disclosures on the company's business, accounting policies, financial instruments, and significant transactions, including the proposed acquisition of CWT, debt refinancing, and related party agreements. They also highlight key estimates and recent accounting pronouncements (1) Business Description and Basis of Presentation Global Business Travel Group, Inc. (GBTG) is a B2B software and services company in travel, expense, and meetings & events. The company announced a merger agreement to acquire CWT for approximately $570 million, expected to close in Q1 2025, funded by cash and 72 million shares of Class A common stock - GBTG is a leading B2B software and services company in travel, expense, and meetings & events, providing a platform for business travel and technology-enabled solutions[18] - GBTG entered into a Merger Agreement to acquire CWT Holdings, LLC for approximately $570 million (cash-free and debt-free basis)[19] - The acquisition is expected to be funded with a combination of cash and approximately 72 million shares of Class A common stock at $6.00 per share[19] - The transaction is anticipated to close in the first quarter of 2025, subject to customary closing conditions and regulatory approvals[19] (2) Recently Issued Accounting Pronouncements The company did not adopt new accounting pronouncements in the first half of 2024. New FASB ASUs on Segment Reporting and Income Taxes, effective for fiscal years beginning after December 15, 2024, are not expected to materially impact financial statements but will require additional disclosures. The SEC's Climate Rules are being evaluated - No new accounting pronouncements were adopted during the six months ended June 30, 2024[24] - ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Taxes) are effective for fiscal years beginning after December 15, 2024, and are not expected to impact consolidated operating results, financial condition, or cash flows, but will require additional disclosures[25][26] - The company is evaluating the impact of the SEC's Climate Rules, which are currently stayed pending judicial review[27][28] (3) Revenue from Contracts with Customers Total revenue increased by 6% for both the three and six months ended June 30, 2024, driven by growth in both Travel Revenue and Product and Professional Services Revenue Revenue by Type | Revenue Type | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Travel revenue | 506 | 479 | 998 | 946 | | Product and professional services | 119 | 113 | 237 | 224 | | Total revenue | 625 | 592 | 1,235 | 1,170 | - During the six months ended June 30, 2024, $12 million of revenue was recognized from the deferred revenue balance as of December 31, 2023[32] (4) Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased significantly to $171 million as of June 30, 2024, from $116 million at December 31, 2023, primarily due to increases in prepaid technology costs and prepaid travel expenses Prepaid Expenses and Other Current Assets Breakdown | Category | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :-------------------------------------- | :------------------------- | :----------------------------- | | Prepaid technology costs | 48 | 36 | | Prepaid travel expenses | 47 | 13 | | Income tax receivable | 31 | 12 | | Prepaid expenses and other current assets | 171 | 116 | (5) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities increased slightly to $479 million as of June 30, 2024, from $466 million at December 31, 2023, mainly due to higher accrued operating expenses and client deposits, partially offset by lower accrued payroll and restructuring costs Accrued Expenses and Other Current Liabilities Breakdown | Category | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :----------------------------------------- | :------------------------- | :----------------------------- | | Accrued operating expenses | 176 | 160 | | Accrued payroll and related costs | 170 | 184 | | Client deposits | 75 | 53 | | Accrued restructuring costs | 19 | 30 | | Accrued expenses and other current liabilities | 479 | 466 | (6) Restructuring, Exit and Related Charges Accrued restructuring costs decreased to $19 million as of June 30, 2024, from $30 million at December 31, 2023, reflecting cash settlements and reversals related to employee severance Accrued Restructuring, Exit Costs Rollforward | Category | December 31, 2023 ($ millions) | Accruals ($ millions) | Cash Settled ($ millions) | June 30, 2024 ($ millions) | | :------------------------------------- | :----------------------------- | :-------------------- | :------------------------ | :------------------------- | | Employee Related | 26 | 6 | (16) | 16 | | Facility - Non-Lease Related | 4 | — | (1) | 3 | | Total Accrued Restructuring, Exit Costs | 30 | 6 | (17) | 19 | (7) Long-term Debt The company's long-term debt remained stable at $1,365 million (net) as of June 30, 2024. Subsequent to the quarter, GBTG refinanced its senior secured credit agreement, establishing a new $1,400 million Term Loan Facility and a $360 million Revolving Credit Facility, extending maturities and altering interest rate margins Long-term Debt, Net | Debt Type | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :---------------------------------------------------------------------- | :------------------------- | :----------------------------- | | Principal amount of senior secured initial term loans | 236 | 237 | | Principal amount of senior secured tranche B-3 term loans | 1,000 | 1,000 | | Principal amount of senior secured tranche B-4 term loans | 135 | 135 | | Total debt, net of unamortized debt discount and debt issuance costs | 1,365 | 1,362 | | Long-term debt, non-current, net of unamortized debt discount and debt issuance costs | 1,358 | 1,355 | - On July 26, 2024, GBTG entered into an amended and restated credit agreement, providing for a $1,400 million senior secured first lien term loan facility and a $360 million senior secured first lien revolving credit facility[38][90] - The proceeds from the new Term Loan Facility were used to repay in full the outstanding principal amount of all tranches of term loans under the original agreement, resulting in a loss on early extinguishment of debt of approximately $40 million[38][91] - The effective interest rate on senior secured term loans under the Original Credit Agreement for the six months ended June 30, 2024, was approximately 11.0%[42] (8) Commitments and Contingencies The company has $205 million in outstanding non-cancellable purchase commitments, primarily for IT services, extending through 2031. It also holds $28 million in bank guarantees. The Merger Agreement for CWT includes potential termination fees ranging from $32 million to $35 million if certain conditions related to antitrust or foreign investment laws are not met by specified deadlines - As of June 30, 2024, the Company had approximately $205 million of outstanding non-cancellable purchase commitments, primarily for service, hosting, licensing, and other information technology contracts, with $88 million due in the next 12 months[49] - The Company has obtained bank guarantees amounting to $28 million for travel suppliers and real estate lease agreements[50] - The Merger Agreement for CWT includes termination fees ranging from $32 million to $35 million, payable by GBTG to CWT under specific conditions related to failure to consummate the merger due to antitrust or foreign investment laws[50] (9) Income Taxes The company reported an income tax benefit of $26 million for the three months ended June 30, 2024, and an expense of $(1) million for the six months ended June 30, 2024. The effective tax rate differs from the U.S. federal statutory rate of 21% due to valuation allowance changes, U.S. minimum taxes, non-deductible expenses, and non-taxable income, which have a significant impact given the low pre-tax net income Income Tax Benefit (Provision) | Period | Benefit from (provision for) income taxes ($ millions) | | :------------------------------------ | :----------------------------------------------------- | | Three months ended June 30, 2024 | 26 | | Six months ended June 30, 2024 | (1) | - The effective tax rate for the three and six months ended June 30, 2024, differs from the U.S. federal statutory rate of 21% due to changes in valuation allowance for deferred tax assets, U.S. minimum taxes, non-deductible expenses, and non-taxable income[51] (10) Earnout Shares The fair value of earnout derivative liabilities decreased to $69 million as of June 30, 2024, from $77 million at December 31, 2023. The company recognized a $10 million loss for the three months ended June 30, 2024, and an $8 million gain for the six months ended June 30, 2024, related to fair value movements - Earnout shares are accounted for as a derivative liability and re-measured at fair value each balance sheet date[53] Fair Value of Earnout Shares Derivative Liability | Metric | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :---------------------------------------------- | :------------------------- | :----------------------------- | | Fair value of earnout shares derivative liability | 69 | 77 | Fair Value Change in Earnout Shares Derivative Liability | Period | Fair value change in earnout shares derivative liability ($ millions) | | :------------------------------------ | :------------------------------------------------------------------ | | Three months ended June 30, 2024 | (10) (loss) | | Six months ended June 30, 2024 | 8 (gain) | (11) Equity-Based Compensation The company granted 12 million RSUs during the six months ended June 30, 2024, as part of its annual grant program. Total equity-based compensation expense was $20 million for the three months and $38 million for the six months ended June 30, 2024 - 12,184,920 RSUs were granted during the six months ended June 30, 2024, with a weighted average grant fair value of $5.53[56] Total Equity-Based Compensation Expense | Metric | Three Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | | :------------------------------------ | :-------------------------------------------- | :------------------------------------------ | | Total equity-based compensation expense | 20 | 38 | - As of June 30, 2024, the company expects to recognize approximately $129 million in compensation expense for unvested RSUs over a weighted average period of 2 years[58] (12) Shareholders' Equity Accumulated other comprehensive loss increased to $(128) million as of June 30, 2024, from $(103) million at December 31, 2023, primarily due to negative currency translation adjustments Accumulated Other Comprehensive Loss | Category | December 31, 2023 ($ millions) | June 30, 2024 ($ millions) | | :----------------------------------------- | :----------------------------- | :------------------------- | | Currency translation adjustments | (56) | (82) | | Defined benefit plan related | (63) | (63) | | Unrealized gain on cash flow hedge | 16 | 17 | | Total accumulated other comprehensive loss | (103) | (128) | - Net changes during the period, net of tax, contributed $(25) million to accumulated other comprehensive loss, mainly from currency translation adjustments[59] (13) Earnings (Loss) Per Share Basic and diluted EPS for Class A common stockholders turned positive for the three and six months ended June 30, 2024, compared to losses in the prior year. Earnout shares are excluded from basic EPS calculation due to potential forfeiture, and certain stock options and RSUs were anti-dilutive Earnings (Loss) Per Share Data | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic income (loss) per share | $0.06 | $(0.23) | $0.01 | $(0.27) | | Diluted income (loss) per share | $0.06 | $(0.23) | $0.01 | $(0.27) | | Weighted average number of shares outstanding - Basic | 464,602,244 | 61,852,280 | 463,003,146 | 61,118,570 | | Weighted average number of shares outstanding - Diluted | 470,655,337 | 61,852,280 | 468,618,232 | 61,118,570 | - Approximately 23 million earnout shares are excluded from basic EPS calculation due to potential forfeiture if stock price thresholds are not met[63] - Certain stock options (11 million for Q2 2024, 21 million for YTD 2024) and RSUs (1 million for Q2 2024, 2 million for YTD 2024) were excluded from diluted EPS as their inclusion would have been anti-dilutive[64] (14) Derivatives and Hedging The company uses interest rate swaps to hedge against variable interest rate exposure on its debt, with notional amounts of $600 million (maturing March 2025) and $300 million (maturing March 2027). Earnout shares are also accounted for as derivative instruments. The fair value of interest rate swaps designated as hedging instruments was an asset of $7 million as of June 30, 2024, while earnout shares derivative liabilities were $69 million - The company uses interest rate swap contracts to hedge interest rate risk on its variable-rate senior secured term loans[68] - Two interest rate swap contracts are in place: one for $600 million notional (fixed rate 3.6800%, matures March 2025) and another for $300 million notional (fixed rate 4.295%, matures March 2027)[69][70] Fair Value of Derivative Instruments | Derivative Instrument | Balance Sheet Location | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :-------------------------------- | :-------------------------------- | :------------------------- | :----------------------------- | | Interest rate swaps (asset) | Other non-current assets | 7 | 7 | | Interest rate swaps (liability) | Other non-current (liabilities) | — | (5) | | Earnout shares (liability) | Earnout derivative liabilities | 69 | 77 | (15) Fair Value Measurements The company classifies its financial instruments measured at fair value into a three-level hierarchy. Interest rate swaps are Level 2, valued using discounted cash flow analysis. Non-employee earnout shares are Level 3, valued using the Monte Carlo simulation, with key assumptions including stock price volatility (45.0%), risk-free interest rate (4.54%), and expected term (2.9 years) - Financial instruments are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable and significant inputs)[74] - Interest rate swaps are Level 2, valued using discounted cash flow analysis. Non-employee earnout shares are Level 3, valued using the Monte Carlo valuation method[75] Key Assumptions for Earnout Shares Valuation | Assumption | June 30, 2024 | December 31, 2023 | | :------------------------ | :------------ | :---------------- | | Stock price ($) | 6.60 | 6.45 | | Risk-free interest rate | 4.54% | 3.98% | | Volatility | 45.0% | 47.5% | | Expected term (years) | 2.9 | 3.4 | | Expected dividends | 0.0% | 0.0% | (16)Related Party Transactions The company has significant commercial agreements with affiliates of American Express and Expedia. Revenues from Expedia affiliates increased, while those from American Express affiliates decreased. The company also has a long-term trademark license agreement with American Express and an amended shareholders agreement involving American Express, Expedia, and QIA Related Party Transaction Summary | Related Party Transaction | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Costs from American Express affiliates | 11 | 8 | 19 | 15 | | Revenue from American Express affiliates | 2 | 6 | 4 | 12 | | Revenue from Expedia affiliates (marketing partner agreement) | 58 | 44 | 98 | 82 | | Costs from Expedia affiliates (transition services) | 5 | 6 | 9 | 14 | - The company has a long-term, 11-year trademark license agreement with an affiliate of American Express for the use of American Express trademarks in business travel services[85] - An amended and restated Shareholders Agreement was entered into on January 11, 2024, with GBT JerseyCo, American Express, Expedia, and QIA, outlining restrictions on equity transfers and GBTG Board composition[87] (17) Subsequent Events Subsequent to June 30, 2024, GBTG refinanced its senior secured credit agreement on July 26, 2024, establishing a new $1,400 million Term Loan Facility maturing in July 2031 and a $360 million Revolving Credit Facility maturing in July 2029. This refinancing resulted in a $40 million loss on early extinguishment of debt - On July 26, 2024, GBTG entered into an Amended and Restated Credit Agreement (A&R Credit Agreement)[90] - The A&R Credit Agreement provides for a $1,400 million Term Loan Facility (drawn in full, maturing July 26, 2031) and a $360 million Revolving Credit Facility (maturing July 26, 2029)[90][91][93] - The proceeds from the Term Loans were used to repay the original credit agreement, resulting in a loss on early extinguishment of debt of approximately $40 million[91] - New interest rates for Term Loans are SOFR-based at 3.00% per annum (or Base Rate-based at 2.00%), and for Revolving Loans, SOFR-based at 2.75% per annum (or Base Rate-based at 1.75%)[94] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the periods ended June 30, 2024. It highlights key operating metrics, revenue and expense trends, and the impact of strategic initiatives and market conditions, including the CWT acquisition and debt refinancing FORWARD-LOOKING STATEMENTS This section outlines forward-looking statements, which are based on current expectations and beliefs, and are subject to various risks and uncertainties that could cause actual results to differ materially. Key risks include changes to financial projections, ability to maintain customer/supplier relationships, geopolitical conflicts, and the successful integration of acquisitions - Forward-looking statements are based on current expectations and beliefs, subject to risks and uncertainties that may cause actual results to differ materially[97][98] - Key risks include changes to projected financial information, ability to maintain customer and supplier relationships, impact of geopolitical conflicts, and the ability to complete and integrate acquisitions[98] Overview The company operates American Express Global Business Travel, a leading B2B software and services provider in travel, expense, and meetings & events. It leverages the Amex GBT Marketplace, client-facing travel solutions (Neo1, Egencia, etc.), and GBT Partner Solutions to serve clients and suppliers. The proposed acquisition of CWT for $570 million is expected to close in Q1 2025 - The company operates American Express Global Business Travel, a leading B2B software and services company in travel, expense, and meetings & events[100] - Key service offerings include the Amex GBT Marketplace, client-facing travel and expense solutions (Neo1, Egencia, Select, Neo, Ovation), and GBT Partner Solutions for third-party travel management companies[100][101][102] - The proposed acquisition of CWT for approximately $570 million is expected to be completed in the first quarter of 2025[103] Key Factors Affecting Our Results of Operations The company primarily focuses on the business travel sector, which is approximately twice as valuable as leisure travel due to premium bookings. Historical results are not directly comparable due to various factors, and the company monitors key operating and financial metrics to evaluate performance and trends - The company primarily focuses on the business travel sector, which is approximately twice as valuable as the leisure travel sector due to premium seats, flexible tickets, long-haul international trips, and last-minute bookings[105] - Historical results of operations are not comparable from period to period due to various factors[104] Key Operating and Financial Metrics Total Transaction Value (TTV) increased by 5% for the three months and 7% for the six months ended June 30, 2024, driven by Transaction Growth and higher average transaction prices. Transaction Growth was 4% and 5% for the respective periods, primarily due to share gains and increased business travel demand. Adjusted EBITDA and Free Cash Flow also showed significant improvements Key Operating and Financial Metrics Summary | Metric | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | TTV | 7,724 | 7,349 | 15,829 | 14,771 | | Transaction Growth | 4% | 9% | 5% | 30% | | Revenue | 625 | 592 | 1,235 | 1,170 | | Net income (loss) | 27 | (55) | 8 | (82) | | Net cash from (used in) operating activities | 73 | 46 | 122 | (31) | | Adjusted EBITDA | 127 | 106 | 250 | 205 | | Free Cash Flow | 49 | 19 | 73 | (90) | - TTV increased by $375 million (5%) for the three months and $1,058 million (7%) for the six months ended June 30, 2024, driven by Transaction Growth and higher average transaction prices due to a higher mix of international transactions and hotel rates[109] - Transaction Growth was 4% for the three months and 5% for the six months ended June 30, 2024, primarily due to share gains and increased demand for business travel, with strong global multinational customer base performance[111] Results of Operations The company experienced revenue growth for both the three and six months ended June 30, 2024, driven by increased transaction volumes and higher average prices. Operating expenses saw mixed changes, with some categories increasing due to strategic investments and others decreasing due to cost-saving initiatives. Net income improved significantly year-over-year for both periods Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 For the three months ended June 30, 2024, total revenue increased by 6% to $625 million. Operating income significantly improved to $42 million from $2 million in the prior year, and net income turned positive to $27 million from a $55 million loss Consolidated Statements of Operations - Three Months | Metric | Three Months Ended June 30, 2024 ($ millions) | Three Months Ended June 30, 2023 ($ millions) | Change ($ millions) | Change (%) | | :------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------ | :--------- | | Total revenue | 625 | 592 | 33 | 6% | | Cost of revenue (excluding depreciation and amortization) | 247 | 243 | 4 | 2% | | Sales and marketing | 99 | 102 | (3) | (4)% | | Technology and content | 112 | 103 | 9 | 8% | | General and administrative | 80 | 86 | (6) | (7)% | | Restructuring and other exit (reversals) charges | (3) | 7 | (10) | n/m | | Operating income (loss) | 42 | 2 | 40 | 2000% | | Interest expense | (32) | (35) | 3 | (10)% | | Fair value movement on earnout derivative liabilities | (10) | (19) | 9 | (47)% | | Net income (loss) | 27 | (55) | 82 | n/m | - Revenue growth was driven by 4% Transaction Growth and 5% TTV growth, with stable yield at 8.1%[125] - General and administrative expenses decreased due to cost savings and reduced integration costs, partially offset by increased M&A costs related to the CWT acquisition[131] Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 For the six months ended June 30, 2024, total revenue increased by 6% to $1,235 million. Operating income improved significantly to $58 million from a $7 million loss in the prior year, and net income turned positive to $8 million from an $82 million loss Consolidated Statements of Operations - Six Months | Metric | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | Change ($ millions) | Change (%) | | :------------------------------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Total revenue | 1,235 | 1,170 | 65 | 6% | | Cost of revenue (excluding depreciation and amortization) | 492 | 485 | 7 | 1% | | Sales and marketing | 198 | 205 | (7) | (4)% | | Technology and content | 220 | 204 | 16 | 7% | | General and administrative | 166 | 158 | 8 | 5% | | Restructuring and other exit charges | 6 | 30 | (24) | (80)% | | Operating income (loss) | 58 | (7) | 65 | n/m | | Interest expense | (65) | (69) | 4 | (6)% | | Fair value movements on earnout derivative liabilities | 8 | (16) | 24 | n/m | | Net income (loss) | 8 | (82) | 90 | n/m | - Revenue growth was driven by 5% Transaction Growth, with a modest decline in yield to 7.8% due to mix of non-TTV driven revenue and higher digital transactions[139] - General and administrative expenses increased primarily due to $25 million in M&A costs for the potential CWT acquisition, partially offset by cost savings and lower integration expenses[143] Liquidity and Capital Resources The company's liquidity is supported by cash flows from operations, credit facilities, and cash balances. Net cash from operating activities significantly increased to $122 million for the six months ended June 30, 2024, and Free Cash Flow improved to $73 million. Post-period, the company refinanced its debt, increasing its revolving credit facility to $360 million and extending term loan maturities to 2031, enhancing long-term financial flexibility - Principal sources of liquidity are cash flows from operations, credit facilities, and cash and cash equivalent balances[150] Liquidity and Capital Resources Summary | Metric | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :------------------------------------------------------------------ | :------------------------- | :----------------------------- | | Cash and cash equivalents | 515 | 476 | | Net cash from (used in) operating activities (six months) | 122 | (31) | | Free Cash Flow (six months) | 73 | (90) | | Undrawn senior secured revolving credit facility (as of June 30, 2024) | 50 | N/A | - Subsequent to the period, the revolving credit facility was increased to $360 million, and term loan maturities were extended to July 2031 through debt refinancing[150][151] Cash Flows Net cash from operating activities significantly increased by $153 million to $122 million for the six months ended June 30, 2024, primarily due to improved operating income and working capital optimization. Investing activities used less cash, while financing activities shifted to a net use due to tax payments on equity awards, contrasting with prior-year debt proceeds Cash Flow Activities | Cash Flow Activity | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | Change ($ millions) | | :---------------------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | | Net cash from (used in) operating activities | 122 | (31) | 153 | | Net cash used in investing activities | (44) | (64) | 20 | | Net cash (used in) from financing activities | (17) | 123 | (140) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (9) | 4 | (13) | | Net increase in cash, cash equivalents and restricted cash | 52 | 32 | 20 | - The increase in cash flows from operating activities was primarily due to an increase in operating income and favorable net change in working capital from Egencia optimization actions[155] - Net cash used in financing activities for H1 2024 was $17 million, primarily due to $19 million cash paid for taxes withheld on equity awards, offset by $5 million from ESPP and stock option exercises[157] Free Cash Flow Free Cash Flow significantly improved by $163 million, turning positive to $73 million for the six months ended June 30, 2024, compared to a negative $90 million in the prior year. This improvement was driven by increased net cash from operating activities and reduced capital expenditures Free Cash Flow Calculation | Metric | Six Months Ended June 30, 2024 ($ millions) | Six Months Ended June 30, 2023 ($ millions) | Change ($ millions) | | :---------------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | | Net cash from (used in) operating activities | 122 | (31) | 153 | | Less: Purchase of property and equipment | (49) | (59) | 10 | | Free Cash Flow | 73 | (90) | 163 | - Free Cash Flow is defined as net cash from (used in) operating activities, less cash used for additions to property and equipment[158] - The $163 million improvement was due to a $153 million increase in net cash from operating activities and a $10 million decrease in cash outflows for property and equipment purchases[160] Net Debt Net Debt decreased by $36 million to $850 million as of June 30, 2024, compared to December 31, 2023, primarily due to an increase in cash and cash equivalents. Subsequent to the period, the company refinanced its senior secured credit facility, borrowing $1,400 million of term loans Net Debt Calculation | Metric | June 30, 2024 ($ millions) | December 31, 2023 ($ millions) | | :------------------------------------------------------------------ | :------------------------- | :----------------------------- | | Total debt, net of unamortized debt discount and debt issuance costs | 1,365 | 1,362 | | Less: Cash and cash equivalents | (515) | (476) | | Net Debt | 850 | 886 | - Net Debt decreased by $36 million, primarily driven by a $39 million increase in cash and cash equivalents[162] - On July 26, 2024, the company refinanced its senior secured credit facility, borrowing $1,400 million of term loans[163] Debt Covenants The company was in compliance with all applicable covenants under the Original Credit Agreement as of June 30, 2024. The new A&R Credit Agreement contains similar affirmative and negative covenants, including a financial covenant for the Revolving Credit Facility requiring a first lien net leverage ratio of less than or equal to 3.50 to 1.00 under certain utilization thresholds - As of June 30, 2024, the company was in compliance with all applicable covenants under the Original Credit Agreement[166] - The A&R Credit Agreement includes a financial covenant for the Revolving Credit Facility, requiring a first lien net leverage ratio of less than or equal to 3.50 to 1.00 if outstanding loans and letters of credit exceed 35% of the facility[166] Interest Rate Margin Under the new A&R Credit Agreement, Term Loans bear interest at SOFR plus 3.00% (or Base Rate plus 2.00%), and Revolving Loans bear interest at SOFR plus 2.75% (or Base Rate plus 1.75%) - Term Loans under the A&R Credit Agreement bear interest at SOFR plus 3.00% per annum (or Base Rate plus 2.00% per annum)[167] - Revolving Loans under the A&R Credit Agreement bear interest at SOFR plus 2.75% per annum (or Base Rate plus 1.75% per annum)[167] Commitment Fee Margin and Debt Ratings The company's borrowings under the A&R Credit Agreement are rated B+ by S&P (Positive outlook), B2 by Moody's, and BBB- by Fitch. A commitment fee of 0.375% per annum is payable on unused Revolving Credit Facility commitments, with a step-down to 0.25% upon a debt rating upgrade from S&P or Moody's within the first year of the CWT acquisition closing - The company's borrowings under the A&R Credit Agreement are rated B+ by S&P (Positive outlook), B2 by Moody's, and BBB- by Fitch Ratings Inc.[168] - A commitment fee of 0.375% per annum is required on unused Revolving Credit Facility commitments, with a step-down to 0.25% upon a debt rating upgrade from S&P or Moody's within the first anniversary of the CWT acquisition closing[168] Contractual Obligations and Commitments Following the July 26, 2024, A&R Credit Agreement, the company has $1,400 million in term loans with quarterly repayments at 1.00% per annum, maturing July 26, 2031. No material changes to other contractual obligations were noted compared to the Annual Report on Form 10-K - Under the A&R Credit Agreement, $1,400 million of term loans were borrowed, with principal repaid quarterly at 1.00% per annum, maturing July 26, 2031[169] - No material changes to contractual obligations and commitments were noted compared to the Annual Report on Form 10-K, other than those related to the A&R Credit Agreement[169] Critical Accounting Policies and Estimates The preparation of financial statements requires significant estimates and assumptions, including those for supplier revenue, credit losses, asset valuations, and deferred taxes. No material changes to critical accounting policies and estimates were reported for the six months ended June 30, 2024 - The preparation of consolidated financial statements requires estimates and assumptions for items such as supplier revenue, allowance for credit losses, asset valuations, and deferred income taxes[23][170] - No material changes to critical accounting policies and estimates were reported for the six months ended June 30, 2024[172] Recent Accounting Pronouncements This section refers to Note 2 for information on recently issued accounting pronouncements, both adopted and not yet adopted by the company - Information on recently issued accounting pronouncements is provided in Note 2 to the consolidated financial statements[173] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations, foreign currency exchange rates, and inflation. It manages interest rate risk through derivative financial instruments and foreign currency risk through internal policies. No material changes in market risks were reported for the six months ended June 30, 2024 - The company is exposed to market risks primarily related to fluctuations in interest rates, foreign currency exchange rates, and inflation[174] - Interest rate risk is managed through derivative financial instruments, and foreign currency exchange rate risk through internally established policies[174] - No material changes in market risks occurred during the six months ended June 30, 2024[175] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness in internal control over financial reporting related to the Egencia business. This weakness stems from a lack of oversight of outsourced revenue and procurement processes. Remediation efforts are ongoing, focusing on integrating Egencia's key applications and processes into the company's legacy control environment, expected to be completed in 2024 - Disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness in internal control over financial reporting[177] - The material weakness is related to a lack of oversight of outsourced revenue and procurement processes and related IT controls for the Egencia business, acquired on November 1, 2021[179][180] - Remediation efforts are underway, involving the integration of Egencia's key applications and processes into the company's existing control environment, with completion expected in 2024[180] Evaluation of disclosure controls and procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2024, and concluded they were not effective due to a material weakness in internal control over financial reporting. Despite this, the financial statements are believed to be fairly presented - Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness in internal control over financial reporting[177] - Despite the material weakness, additional procedures were completed, and management believes the consolidated financial statements fairly present the company's financial condition, results of operations, and cash flows[178] Remediation Efforts to Address Material Weakness The material weakness in internal control over financial reporting is related to Egencia's client revenue and vendor payment processes. Remediation involves integrating Egencia's key applications and processes into the company's legacy control environment, with completion expected in 2024. The weakness will be considered remediated once controls operate effectively for a sufficient period - The material weakness is related to the processes of recording client revenue and payment of certain vendors of the Egencia business and Egencia client receivables[180] - Remediation efforts include assessing additional steps and implementing measures to address underlying causes, primarily through integrating Egencia's key applications and processes into the company's legacy control environment[180] - Remediation is expected to be completed in 2024, and the material weakness will not be considered remediated until controls operate effectively for a sufficient period[180] Changes in internal control over financial reporting Other than ongoing remediation efforts for Egencia's client revenue and vendor payment processes, including related IT controls, there were no other material changes to internal control over financial reporting during the period - No material changes to internal control over financial reporting occurred during the period, other than ongoing remediation efforts for Egencia's client revenue and vendor payment processes[181] Limitation on Controls Management acknowledges that internal control systems have inherent limitations and can only provide reasonable, not absolute, assurance that objectives will be met, and may not prevent or detect all errors and fraud - Management acknowledges that internal control systems have inherent limitations and can provide only reasonable, not absolute, assurance that objectives will be met[182] - No control system can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues have been detected[182] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, debt defaults, mine safety, other information, exhibits, and signatures ITEM 1. Legal Proceedings The company is involved in ordinary course litigation but believes no pending legal proceeding or governmental examination would have a material adverse effect on its financial condition or liquidity - The company is involved in litigation and other proceedings in the ordinary course of business[183] - Management believes no pending legal proceeding or governmental examination would have a material adverse effect on the company's consolidated financial condition or liquidity[183] ITEM 1A. Risk Factors No material changes to risk factors were reported for the six months ended June 30, 2024, except for new risks related to the use of artificial intelligence (AI) in operations. These AI risks include potential reputational harm, competitive disadvantage, legal/regulatory liability, technical complexities, security vulnerabilities, and evolving regulatory landscapes - No material changes to risk factors were reported for the six months ended June 30, 2024, except for new risks related to the use of artificial intelligence (AI)[184][185] - Risks associated with AI include potential reputational or competitive harm, legal/regulatory liability, unexpected technical difficulties, security vulnerabilities from third-party providers, and the rapidly evolving regulatory landscape[185][187][188] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report ITEM 4. Mine Safety Disclosures This item is not applicable to the company ITEM 5. Other Information During the three months ended June 30, 2024, none of the company's directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2024[189] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL-related documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[191] SIGNATURES The report is duly signed on behalf of Global Business Travel Group, Inc. by Paul Abbott, Chief Executive Officer, and Karen Williams, Chief Financial Officer, on August 6, 2024 - The report was signed by Paul Abbott, Chief Executive Officer, and Karen Williams, Chief Financial Officer, on August 6, 2024[193]