Amadeus IT Group SA

MAD:AMS

Earnings Call Analysis

Amadeus Q1 2024: Solid Growth and Strategic Moves

In Q1 2024, Amadeus experienced a 14% increase in revenue and EBITDA, with EBIT growing by 19%. The company generated a solid free cash flow of €336 million and confirmed its 2024 outlook. Significant acquisitions included Voxel Media and Vision-Box, enhancing their electronic invoicing and biometric solutions capabilities, respectively. Amadeus also secured major contracts with Expedia for NDC technology and British Airways for the Amadeus Nevio platform. Additionally, Amadeus maintained a leverage ratio of 1.1x net debt-to-EBITDA and ended the quarter with a net financial debt of €2.46 billion.

Financial Highlights

Amadeus Group has shown strong financial performance in the first quarter of 2024. Revenue increased by 14.1% compared to Q1 2023. This growth was driven by robust performances across its segments: air distribution, IT solutions, and hospitality and other solutions. EBITDA and EBIT also increased, with EBIT growing faster at 19.1%, leading to an expanded EBIT margin of 1.2 percentage points. Adjusted profit saw an 18.8% rise, reflecting the overall positive financial trajectory.

Revenue and Margin Dynamics

The group's revenue growth was bolstered by a 12.6% year-over-year increase in air distribution revenue, despite a softer expected growth rate in the coming quarters due to a moderation in the booking mix effect. Air IT Solutions revenue grew by 17% primarily due to an increase in PB volumes and a 0.6% higher revenue per PB. The hospitality segment also experienced strong growth of 13.2%, driven by new customer implementations and volume expansion. Cost of revenue increased by 19.3% due to business volume expansion and varied air distribution costs, but the composition of revenue is expected to stabilize in subsequent quarters.

Operational and Strategic Developments

Amadeus has been proactive in expanding its portfolio and capabilities. The acquisition of Vision-Box, a leader in biometric solutions, and Voxel Media, specializing in electronic invoicing and payments, are key strategic moves. The company also announced significant business partnerships, such as deploying NDC technology for Expedia Group and integrating Amadeus Nevio with British Airways. These partnerships reflect Amadeus' commitment to modernizing its technology offerings and enhancing its industry position.

Outlook and Guidance

Amadeus's management confirmed the company’s outlook for 2024, indicating a positive trajectory in revenue and profit growth. It expects fixed cost growth in 2024 to be lower than in 2023, excluding the impact of the Vision-Box acquisition. Free cash flow guidance for the year is between EUR 1.2 billion to EUR 1.25 billion. Management also highlighted a projected acceleration in revenue growth and volume expansion in the fourth quarter, driven by improved industry conditions and strategic initiatives.

Investment in Innovation and Technology

Amadeus continues to invest significantly in R&D, with an 8.6% increase in the first quarter year-over-year. Focus areas include the development of the Amadeus Nevio platform, enhancements in travel and payment solutions, and the migration to cloud-based services. CapEx also grew by 6.8% to support these technological advancements. These investments are expected to drive future growth and maintain Amadeus's competitive edge in the industry.

Key Business Segments Performance

The distribution segment strengthened its content offering with multiple new contracts and renewals, including significant agreements with China Eastern Airlines and Thai Airways. The IT solutions segment saw robust growth driven by new implementations and upselling in the Altéa/New Skies customer base. In the hospitality segment, Amadeus enhanced its presence with several new agreements in the business intelligence and payments sectors, showcasing the broad adoption of its solutions across the industry.

Challenges and Risk Management

Despite overall positive performance, the company faces some challenges. Cost pressures from rising transaction processing and cloud migration costs were noted, along with higher personnel expenses due to global salary increases. Additionally, Western Europe experienced slow recovery compared to pre-pandemic levels, partially due to labor strikes and seasonality effects. The company’s strategic focus on long-term investments and partnerships is aimed at mitigating these risks and fostering sustainable growth.

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the Amadeus First Quarter 2024 Presentation Webcast.

[Operator Instructions]

I'm pleased to hand you over to Luis Maroto, President and CEO of Amadeus. Please go ahead, sir.

[Luis Camino, executive]

Good afternoon. Welcome to our first quarter results presentation, and thank you for joining us today. I'm joined by Till, I will review our most important developments this quarter until we elaborate on the key financial details. As you know, Till will be departing Amadeus to pursue a new career opportunity. We wish him well, and we are grateful for his contribution to Amadeus since his arrival in September 2020. A process to hire Amadeus next CFO has been launched by our Board of Directors and is underway. Until further notice, I will be acting as CFO. Till will also continue to support us for some time. We will update you on this matter further down the line. We are looking forward to our Investor Day on June 18 in London.

During the day, my leadership team and I will provide you with the strategic update across our businesses. We will also be providing you with our views on our financial evolution for the midterm. The plan we will present to you has been built by the Amadeus senior leadership team together, and we are all committed to delivering on it. We look forward to seeing you at our Investor Day or alternatively, we welcome you to connect to the webcast.

Please turn to Slide 4, and let me start with an overview of our results. In the first quarter, our steady financial evolution continued, Amadeus Group revenue increased by 14%, EBITDA grew 14%, EBIT grew faster by 19% and adjusted profit expanded by 19%. This positive development was supported by double-digit growth evolutions at each of our reported segments, our distribution, IT solutions and hospitality and other solutions. Our financial performance in the quarter drove solid free cash flow generation of EUR 336 million. In late February 24, we announced the completion of our latest set buyback program launched in November '23. And in March, we announced our acquisition of Voxel Media, a leading provider of electronic invoicing and a B2B electronic payment specialists. As a result, our leverage at markers defers was 1.1x last 12 months EBITDA. Our net financial debt amounted to EUR 2.46 billion.

To complete our developments on the [indiscernible] front, we were pleased that having obtained all the regulatory approvals in early April, we closed our Q1 announced acquisition of Vision-Box, a lean provider of biometric solutions for airports, airlines and border control customers. This year has picked up well and in line with expectations we serve with you for '24 early in the year and we confirm our outlook for 2024.

Additionally, this quarter, we have made some important business announcements. Amadeus will be deploying its NDC technology for Expedia Group. This represents a significant endorsement for our NDC industrywide rollout and reflects some Amadeus' commitment to the industry's evolution towards modern retailing. Also, we were very pleased to announce that British Airways has chosen Amadeus as technology partner for Amadeus Nevio. Amadeus Nevio is a new portfolio of modular solutions built on Open and AI technology. The agreement is a milestone in the airlines path to modern retaining and the use of dynamic offers and orders, and it puts British Airways at the forefront of the retailing transformation.

Finally, I would also like to highlight that in payment, Amadeus wholly-owned subsidiary, Outpayce, has been granted eMoney license it applied for '22. Outpayce intends to offer prepaid virtual card issuing with this B2B Wallet solution with travel agencies use to pay travel providers.

Let's now review the key developments at each of our reported segments. Please turn to Slide 5, starting with our distribution. In the first quarter, we continued to strengthen our content offering and signed 16 new contracts or renewals of distribution agreements with Amadeus. We are also advancing our NDC. This quarter, China Eastern Airline became the first airline in Mainland China to sign with Amadeus for international NDC distribution. The travel platform will also be distributing the full range of Thai Airways NDC fares. At March 31, we had over 50 NDC-related distribution agreements signed with airlines, which we are in the process of implementing.

We aim to make NDC possible for the travel industrial scale to the [indiscernible]. Carriers adopting NDC required the global reach. We enabled to distribute their content, both under the traditional [indiscernible] and under NDC standard. Amadeus travel platform explains the airline selling reach, the geographical and customers set reach and is the primary distributor for the higher yield volumes. For the travel sellers Amadeus offers a fully orchestrated multi-source content provision. We have good content from both NDC and [indiscernible] technologies in a singer interface promoting simplification, transparency, comparability and serviceability of the content independent of the NDC version for the technology use.

Our technologies end to end, including a strong for servicing capabilities. We will keep integrations into the travel sellers ecosystem, including end-to-end mid [indiscernible] integration automated payment reconciliation, automation an [indiscernible] services. As NDC content made available through our platform increases will be capturing more and more NDC bookings. Our goal is to become the disputed NDC aggregator for airlines and travel agencies. In this regard, we are making progress with travel agency and the large [indiscernible] OTA space as well. In the Travel agency side, as I was saying, Amadeus will be deploying NDC technology for one of the largest OTAs in the world, Expedia Group. Within the large OTA space in the U.S., Expedia joins the list of our NDC agreements with Priceline and Fareportal and other travel agencies worldwide such as Apple Leisure Group, Travix and Despegar.

With regards to our volume evolution in quarter 1, our bookings grew 3% and our distribution revenue grew by 13%. Our fastest-growing region was Asia-PAC and our largest regions remain Western Europe and North America. As we should expect, we see a normalization of our booking growth in 2024 compared to the '23 evolution, which benefited from a stronger recovery effect. IATA project 10% on traffic growth for '24 on the back of 38% in '23.

We have two specific effects on our booking in this quarter, as we anticipated, our booking performance was negatively impacted by the timing of Easter and Ramadan which in '24 took place mostly in the first quarter versus last year. It happened in the second quarter. Also, as we saw in quarter 4, our bookings in quarter 1 of this year were impacted by the evolution of our local bookings in NORAM. And in NORAM, we are seeing local bookings with channel through direct connects between one very large OTA and a few of the larger carriers.

If we exclude the holiday timing differences of the local booking effect in NORAM. I mentioned, we estimate our booking growth in the first quarter was at around 8%. As we described last quarter, direct connects between bigger lines and online [indiscernible] in large domestic consolidated markets are a possibility. They are costly to build and to maintain therefore, to be economically viable, they require large volumes. They typically affect local bookings where we generate no fees. The impact on our air distribution revenue growth from these direct connects in NORAM in quarter 1 was marginal.

Please turn to Slide 6 now for a review of Air IT solutions. Our key announcements this quarter in AIR IT, as I was saying before, is British Airways contracting to become a Nevio customer. Finnair and Saudia also signed for Amadeus Nevio and we aim to continue to expand this list. With Amadeus Nevio where we are leading the way for the retailing transformation of the airline industry. It's a traveler-centric retailing platform, offering next-generation retailing capabilities to the airlines, including but beyond offers and orders, but by a fully flexible future-proof cloud-native solution in the latest advances in AI.

As we have discussed in the past, this is an industry evolution that will require years of focus and dedication but we are well positioned to drive this transformation to support the industry's transition. Additionally, in the quarter, several airline customers signed additional Altéa components such as TAROM and RwandAir.

In Airport IT, we continue to expand our customer base, the scope of solutions we provide to existing customers as with several signatures in the Americas, such as [indiscernible]. Amadeus [indiscernible] and disruption at the airport. Designed as an app for Microsoft Teams, airlines, airports, border control and service providers will be able to cooperate in a fully digitalized airport operations center to guide right-time decisions and deliver a smooth operations at the airport. And for stakeholders will benefit from Microsoft machine learning capabilities that stimulate the impact of potential plans so they can be continually fine-tune.

Finally, as I mentioned earlier, we closed our airport IT acquisition of April 5 of this year. We are excited about incorporating Vision-Box. Biometric in travel enabled process digitalization and stakeholders' interconnectivity, improving airlines and airports operational efficiency and the passenger experience. Vision-Box is a leader in biometrics and bring us new capabilities or biometrics hardware and software, also adding border control solutions to our Amadeus portfolio.

Relation to our passengers boarded volumes in the first quarter, Amadeus PBs increased by 16%, driven by organic growth of 14% on the back of global air traffic growth in the period. This growth was complemented by a net positive nonorganic CapEx as a result of customer implementation, the main ones being Etihad Airways, ITA Airways, Hawaiian, Bamboo Airways and Allegiant in '23 is slightly offset by airline customers ceasing or suspending operations.

In the first 3 months of '24 by PBs, Asia-Pac and Middle East and Africa were our best performing regions and Asia-Pac and Western Europe remain our largest region.

Please turn to Slide 7 for an update on our Hospitality segment. Hospitality and Other Solutions revenue grew by 13% in the first quarter. Both Hospitality, we generated the majority of the revenues in this segment and payments delivered strong growth, supported by new customer implementations and volume expansion. For the quarter, we expanded and created several new agreements and partnerships in the hospitality space. Remington Hospitality, the U.S.-based hotel management company with more than 130 hotels in 26 states has expanded its technology partnership with Amadeus to include our business intelligence solution Demand360+ adding to its current use of Amadeus Delphi, Agency360+ and Travel Seller Media.

During the quarter, we had several other customers wins for our Business Intelligence Solutions, including 2 enterprise chains that have expanded the business intelligence relationship with Amadeus. The Trip.com Group will incorporate Amadeus Mobility solutions. Mews, an industry-leading hospitality management system will be adding Amadeus Delphi, Amadeus Guest Management, Amadeus Demand360 to their existing agreement including iHotelier. Duetto, a leader in cloud-based revenue strategy solutions, Amadeus will provide seamless access to data from Amadeus BI solutions directly within the Duetto platform. I will now pass on to Till for further details on our financial performance in the quarter.

[Till Streichert, executive]

Thank you, Luis. Hello, everyone. Please turn to Slide 9 to review our revenue evolution. In Q1 2024, our group revenue grew 14.1% versus Q1 2023, supported by strong revenue growth across our segments. In the Air Distribution, revenue in the quarter was 12.6% versus Q1 2023, primarily driven by the booking evolution Luis described and by revenue per booking, which was 9.5% higher than in Q1 2023, fundamentally driven by a lower weight of local bookings in the quarter compared to Q1 2023 and pricing effects, including impacts from inflation and yearly price adjustments, contract renewals and new agreements. We expect a softening in the revenue per booking growth in the coming quarters driven by a gradual moderation in the booking mix effect relative to 2023 booking with mixes.

With regards to Air IT Solutions, revenue in the quarter was 17% higher than in Q1 2023 driven by the PB volumes evolution, coupled with a 0.6% higher revenue per PB. The increase in the revenue per PB in the quarter was primarily driven by positive impacts from the Altéa/New Skies customer mix, inflationary or price adjustments and from upselling of incremental solutions partly offset by a proportion of Air IT revenues not linked to PBs, growing at a softer growth rate than PBs. In the following quarters, we expect higher growth in revenue per PB supported by customer mix and positive pricing impacts as well as by the consolidation of Vision-Box. Regarding hospitality and other solutions, revenue in Q1 2024 was 13.2% versus Q1 2023, driven by strong performances of both hospitality and payments on the back of customer implementations and volume expansion.

Within hospitality, hotel IT revenues increase was mainly driven by sales and event management, service optimization and Amadeus CRS.

Media and Distribution revenues continue to grow strongly, backed by an increase in transactions and Business Intelligence revenue expanded, driven by customer implementations. And within payments, all its revenue lines reported strong growth rates supported by higher payment transactions and customer implementations.

Please now turn to Slide 10 for a review of our EBITDA, EBIT and profit evolution. Please note we are excluding acquisition transaction costs associated with Vision-Box and Voxel's acquisitions of EUR 0.6 million in aggregate incurred in Q1 2021.

In Q1 2024, our EBITDA was 14.2% higher than in Q1 2023. EBITDA margin was stable at 38.9%. Our EBITDA performance resulted from the revenue evolution we explained before, a higher cost of revenue and an increase in our combined personnel and other operating expenses cost lines. Cost of revenue grew 19.3% in the quarter versus Q1 2023, resulting from volume expansion across our businesses and several factors impacting air distribution variable costs, including customer and country mixes. Cost of revenue over revenue was 25.9% in the first quarter as expected, impacted by business mix quarterly seasonality as the air distribution segment typically has a higher weight on revenues in the first quarter of the year. Cost of revenue over revenue is consequently expected to decrease in the coming quarters.

Our P&L fixed costs in Q1 2024 compared to the same quarter last year were 10.5% higher. This cost evolution mainly resulted from increased resources, particularly in our development activity to support our R&D investment coupled with a higher unitary cost resulting from our global salary increase and higher transaction processing and cloud costs caused by the volume expansion and the progressive migration of our solutions to the public cloud.

Fixed cost growth is expected to grow faster from Q2 impacted by the Vision-Box consolidation into our Amadeus books. Let me remind you of our stated expectations for the year, excluding the Vision-Box impact, we expect our fixed cost growth in 2024 to be lower than in 2023.

Below the EBITDA line, D&A expense in the quarter versus Q1 2023 was 2.9% higher mainly resulting from a higher expense from internally developed assets and depreciation from the reassessment of the useful lives of certain assets, partly offset by lower depreciation expense from a reduction in hardware investment driven by our shift to the cloud. The increase in EBITDA, coupled with our D&A expense evolution drove EBIT up by 19.1% in Q1 2024 versus Q1 2023, and EBIT margin expanded in the quarter by 1.2 percentage points versus Q1 2023.

Net financial expense increased in the quarter by EUR 5.2 million or 35.9% as a result of nonoperating FX losses and lower interest income and an increase in interest expense by 5.2% as a consequence of higher cost of debt relative to the same quarter last year. Income taxes increased by 13.1% in the quarter versus the same period in 2023, largely driven by higher taxable income. Finally, resulting from all these effects, adjusted profit grew by 18.8% in Q1 2024 versus Q1 2023.

Please turn to Page 11 to review our R&D investment and CapEx. R&D investment grew by 8.6% in Q1 2024 versus Q1 2023 and focused on the evolution of our portfolio for airlines, including Amadeus Nevio, of our hospitality platform, enhancing our solutions for travel sellers and corporations as well as for airports, and of our payment solution portfolio, our migration to the cloud and our partnership with Microsoft. And of course, also bespoke in consulting services provided to our customers and customer implementations.

In Q1 2024, our CapEx increased by EUR 10.1 million or 6.8% compared to Q1 2023, mainly driven by a higher capitalized R&D investment and, to a lesser extent, investments in our offices and hardware. CapEx represented 10.6% of our revenue in Q1 2024. In the coming quarters, we expect R&D investment and CapEx to grow faster than in Q1, driven primarily by Air IT and hospitality and other solutions related R&D.

Please turn to Slide 12 for a review of our free cash flow generation and leverage. With regards to free cash flow, we generated EUR 336.1 million in Q1 2024, 23.1% higher than in Q1 2023, resulting from the increase in EBITDA, an improving change in working capital outflow and higher CapEx and taxes.

For our second quarter free cash flow evolution, let me remind you of the EUR 42.8 million nonrecurring collection we had in Q2 last year from the Indian tax authorities. In turn, in Q2 this year, as I was saying, due to the progress and timing of our larger R&D projects, we will see R&D and CapEx grow faster than in Q1. We also expect that our usual change in working capital outflow in Q2 and will be higher this year, mainly due to the Easter seasonality effects and growth in variable personnel-related expense.

Due to these effects, we do not expect our free cash flow in Q2 this year to be above Q2 last year. This is expected, and we confirm our EUR 1.2 billion to EUR 1.25 billion free cash flow expectation for 2024. Net debt amounted to EUR 2.46 billion at the end of March. EUR 319.6 million higher than at the end of December. The increase in net debt in the quarter was driven by the acquisition of treasury shares under the share repurchase program that we announced in November 2023. The interim dividend payment and the acquisition of Voxel partly offset by our free cash flow generation in the quarter. Leverage amounts to 1.1x net debt-to-EBITDA at quarter end.

And with this, we finish the presentation and we are ready to take any questions you may have.

[Operator]

[Operator Instructions]

The first question comes from the line of Alex Irving from Bernstein.

[Alexander Irving, analyst]

Three for me, if I may, please. First, on Nevio and then on bookings. Starting with Nevio, I'd like to know a bit more about the economics here. Could you please help us understand what the incremental economics look like as an airline implements Nevio? And is this something that you expect to be meaningfully accretive to revenue passenger boarded in the next couple of years?

Second, on competitive dynamics. One of our other order management systems in the market, those states look to being focused more on simpler airlines that might otherwise have been, say, Navitaire customers rather than Altéa ones. Is there any real competition to your order management system currently for more complex network airlines?

And then third, on bookings, please see your air bookings grew 2.9% year-on-year. Could you tell us what the growth rate was for EDIFACT bookings and NDC bookings, please?

[Luis Camino, executive]

Okay. So let me start with Nevio. I mean, look, we are making investments into, as we have explained to moving into offer an order management. We feel this is going to create value to the industry. And when you create value, of course, we aim to generate incremental value to us as a result of that. It is going to take years. So this is not going to happen tomorrow.

And you mentioned in the next couple of years, no, it will not happen in the next couple of years. It will be a very progressive implementation as a result of what we are doing with airlines. We will start implementing modules as a result of that. But in the medium term, yes, we expect that Nevio should be accretive to our P&L and should generate incremental revenues in the relationship that we have with our customers.

Second question is competition. There are always competition. Of course, it's not just about Altéa. We also deal with offer and order with Navitaire even if when we talk about simple carriers, the technology required is different. As you know, the low cost carriers are not working exactly the same as the full service carriers. But yes, I mean, definitely, we will expect always competition to try to recount our customers.

There will be other players, and what we need to do is really to provide the best technology and being very competitive in the market, but we have -- it happens with Altéa and with Navitaire these days, we don't expect to be the only one, but we feel we are strongly positioned on both with the full service carriers and low cost carriers to face whatever competition will be coming in the medium term.

We lost to our booking, we have not disclosed an exact details. I mean, as we mentioned, still NDC bookings are low. They are in the low-single digit, but growing extremely fast and increasing as a percentage of the total in any single quarter. So increasing well, growing and look, moving well. That's the only thing I can say, but still I mean the impact in our economics is small due to the weight over the total bookings.

[Operator]

Next question comes from the line of Adam Wood from Morgan Stanley.

[Adam Wood, analyst]

Till, best wishes in the new role as you move on. Maybe just first of all, you've talked in the slides again about wanting to be the undisputed NDC aggregator. We know that non-GDS players have taken share on NDC bookings in the earlier stages of NDC. As NDC volumes ramp, could you just help us go through the key reasons that you think you have a big differentiation versus those players. You mentioned a few of the services that you can provide on the call.

But if you could flag the kind of key things that you think you bring that those GDS aggregators would not be able to bring to the airlines and travel agents.

Maybe just a quick follow-up on Nevio. Would it also be a per PB model that you'd be implementing there versus a subscription model?

And then finally, just on hotels. So you've signed some partnerships with Mews and Duetto, it looks like they cover areas that you might think Amadeus would cover within its hotel suite over time. Could you talk a little bit about the strategy here? Is there a willingness to partner to give hotels choice between a complete suite solution from you and best-of-breed individual products? Or is that more of a need to address some gaps in the functionality short term?

[Luis Camino, executive]

Let me start with the last one. Right, three questions. I mean, we work internally and with partners. I mean, the scope of solutions that we have in the market in many areas of hospitality is very broad, as you know well. We feel we have a very broad scope of solutions. But of course, we also try to see things that we can do internally and in many cases, use partners, such as the 2 cases that you mentioned. This will keep going in the future. In some cases, we'll develop more organically, and we will extend our range of assumptions and do internally. In other cases, we'll keep working with partners. Again, there are many solutions we need to integrate in the world and our goal is to sell the majority of the customers there.

With regards to Nevio, it's a transaction fee, quite similar to the [indiscernible] transaction is not a subscriber model, okay? And with regards to the difference with aggregators, we have mentioned before, I think as things scale, you need size, you need a better servicing capabilities, which is not so easy to offer consistent and strong aftersales services. We believe they are -- we have a big capability to really offer that also how we are going to really deal with the scale. The scale is going to represent something that everybody will need to fix.

And of course, our integration with our IT solution is important and also our capabilities to provide technology that is not going to really go through the inventory of the airlines on ongoing basis. So there are a number of -- and then of course, what we are working is the integration of NDC with depart content with the mid-back office of the travel agencies of our solutions is not just including the NDC piece but the whole flow and process within the travel agency that is needed to connect to the airlines.

So overall, again, this is a journey where we are in the process of implementing. We feel extremely confident that with what we are doing, we will see an increase in our volume, both in NDC as well as the total Amadeus booking [indiscernible] in the years to come.

[Operator]

The next question comes from the line of Sven Merkt from Barclays.

[Sven Merkt, analyst]

First, can you maybe comment on the pipeline for Nevio and whether Nevio has an impact in the near term on the cross-selling of your other modules within Airline IT because maybe some airlines reevaluate their plans now there?

And then secondly, can you provide us a bit more color on why the cost of sales has grown that much ahead of revenues. And especially what have been the precise effect within Air distribution?

[Luis Camino, executive]

Okay. Let me cover Nevio. I mean the pipeline is strong. That's what I can say. I mean, more than that is difficult. Why? I mean, look, everyone in the industry, and this is an initiative led combined by IATA and the airlines moving into more retailing and therefore, moving into offer and order is part of the journey. Some airlines are being more advanced than others in that [indiscernible] take years.

But that means that we are having discussions about the evolution of the industry and about how to move to Nevio with the majority of the airlines, both customers and noncustomers. Saying that, of course, hopefully, you will see further news on additional customers in the following quarters, but it's very difficult to really be more concrete until you have specific contracts, but the pipeline is [indiscernible] it's part of the normal evolution of the industry.

[Till Streichert, executive]

And the second question in terms of cost of sale over revenue. In Q1, we obviously had a slightly faster growth and as I explained, I do expect that going forward in the quarters to come, that this is actually moderating, reason being is that in the first quarter, we have got a higher weight. If you just look at the revenue mixes, and you can see that the air distribution side, the GDS side has obviously taken quite a bigger share. And that usually obviously comes with the incentive associated, which drives up your overall cost of revenue over revenue to a higher level. But again, over the quarters to come, I expect this to moderate. And yes, that's really it.

[Sven Merkt, analyst]

And what the incentive fees higher purely because of mix? Or has there have been some underlying pressure perhaps as well?

[Till Streichert, executive]

No. Look, I mean what you always have is on your incentive side, the usual share of wallet competition. And you have customer mix as under knees. But again, if you step back, which I was highlighting, and you look at your overall cost of revenue over revenue for the business over the quarters to come, I expect this to moderate and be fairly similar to what we had in prior year.

[Operator]

The next question comes from the line of Michael Briest from UBS.

[Michael Briest, analyst]

Two for me. On the Expedia relationship, can you say is that a global rollout? And is this something that could impact the negative headwinds in distribution from Direct Connect technology? Or is it sort of separate to that?

And then on Altéa NDC. I think you're up at nearly 20 customers now. Can you talk a bit about the revenue model? And I think most of these are non-U.S. airlines. So given you're saying that NDC Direct Connect are only really relevant to large consolidated domestic markets. Why are airlines like SAS and Singapore and TAP and Portugal taking Altéa NDC?

[Luis Camino, executive]

Okay. Let me deal with that. I mean Altéa NDC, I know we have more than what you mentioned, but Altéa NDC is the technology piece of that, okay? So it's not the part of the travel agency which is what we call NDC-X which is more of the technology that is required to work with the travel agencies with the inventory. So the fact that an airline takes Altéa NDC is an additional module that we offer as part of our solution. Of course, it has many advantages like we explained to you that the airlines using Altéa use also Altéa NDC. They may use something different than us for Altéa NDC.

It's an incremental module and the business model, again, is a transaction fee, depending on the airline, of course, and adding to our total revenues that we get from the airlines. That's with regards to Altéa NDC. And again, you can do direct connects, if you wish without the Altéa NDC or without Altéa NDC, of course, Altéa NDC is providing this capability too, this is needed.

With regards to the first question on Expedia, Yes. I mean it's very important for us to work with Expedia. This proves that our technology is going to really be valid. This is a journey. Again, we are working with them to really be ready for the implementation. We will start getting volumes, and of course, our goal at one point is that all the volume that today is being done in alternative channels will come through us. Of course, it will take time. It's not going to happen tomorrow, but that's our objective of working with Expedia and the same with working with the risk of travel agencies in the world.

[Michael Briest, analyst]

But will it -- once it's deployed and the headwinds in North America from direct connects?

[Luis Camino, executive]

I mean, again, look, we will start implementing that. And look, I'm not going to really disclose specific customers today. We are working to be ready with the technology. And as I said, it will take some time. But hopefully, at one point, we will be able to manage everything. I mean, the fact we have deals with travel agencies around the world usually are not exclusive to us, as you know, because travel agencies work with us or with alternative providers of the solution, but moving to that journey, complementing our solutions with Expedia with Priceline, with the rest of the travel agencies, not just on the OTA space, but also for TMCs and retail.

And as we get volume and our capabilities improve, our goal definitely is to move back a part of the volume that today is not in the GDS. So the objective is there. But I will not commit today that all this volume, the result of the system is going to come back in the years to come. That's our goal. And hopefully, there will be some upside.

[Operator]

The next question comes from the line of Victor Cheng from Bank of America.

[Hin Fung Cheng, analyst]

Just going back on the gross margin side. Can you talk a bit more about the cost of sales progression. Obviously, you've mentioned distribution mix being a bit higher this quarter. But even then when I look at prior quarters and especially Q1 last year and the year prior as well, it seems like that cost of revenue is still growing a bit faster.

So can you provide a bit of color on that? And how should we think -- and specifically with regards to bookings have moved to direct connect in the U.S. Aren't they gross margin dilutive and presumably that will become a tailwind in this quarter.

And then secondly, can you provide us with a bit of color on April and May trends on bookings? What are you seeing differently compared to Q1? And it looks like, at least for Q1, corporate bookings have been very strong, whilst leisure is being impacted by direct connect. And with Amadeus, I believe, is it fair to say that maybe you have a less than ideal mix compared to your peers and maybe a bit of pressure on the bookings growth for the rest of the year as well?

[Till Streichert, executive]

Okay. Let me just reiterate, Victor. On the gross margin side, again, for the quarters, I expect what you see right now in the first quarter as an elevated level to decrease and come down a little bit across all the segments. So if you look at it in totality. And again, at the moment, this is driven very much by just the higher weight of the revenues, the distribution takes in the first quarter.

Other than that, it is, as it has been before, depending up on customer mix, segment mix, and these dynamics play a role in that. But again, if you look at it on a full year basis and therefore, also, when you work -- when you step through the different margins that we have guided on, we are comfortable in confirming our outlook margin targets as well when you get to EBITDA margin, when you get to EBIT margin comfortably.

[Luis Camino, executive]

Okay. So let me give you some color on the volumes. I mean, as you can imagine, into April, our volume performance improved considerably from the first quarter and this is supported by the positive holiday seasonality impact and a positive working days effects compared to the first quarter. I mean we take together combined the first quarter plus our best estimate for April. We see an evolution, which is close to plus 4%, okay, in the year-to-date.

May and June will have negative working day effect, but we expect to deliver growth in the second quarter, at least slightly higher than in the first quarter. And throughout the year, we expect growth to progressively pick up and to accelerate in the fourth quarter, driven by the softening of certain industry effects pertaining to '24, our commercial activity results and also due to a softening of the base.

[Operator]

The next question comes from the line of Toby Ogg from JPMorgan.

[Toby Ogg, analyst]

Yes. Perhaps just following up on the gross margin there, obviously, 74%, down 100 bps year-over-year. I know the air distribution segment is that lower gross margin segment. But normally, if the air distribution segment is smaller in the mix year-over-year, which it was, that should be helpful for the group gross margins.

So was the gross margin pressure all concentrated within the air distribution segment? And what were some of the specifics in that, that can explain that type of a move in the gross margin? And then how do you expect those specific factors within air distribution to evolve over the next few quarters? And then just following up on the regional volume picture on the air distribution side, it looks like Western Europe continues to see pressure there running at 64% of 2019 levels. So down from the run rate that it was tracking out in 2023. Is there anything you'd call out specifically outside of the holiday seasonality to explain these dynamics in Western Europe? And why this region is still running pretty significantly below 2019 levels?

[Till Streichert, executive]

Okay. Let me take the first one. Look, what I said before, just take it as kind of reiterated, what I'm adding, when you look at the long-term trend, of course, you're right, as basically your distribution and your IT business mix has evolved. You do have a little bit of a benefit, absolutely. But that's when you look at it over the longer term, one point which I would equally like to remind you of is when you look at the entire fold or envelope of the cost of revenue within hospitality, the media distribution business also grew strongly which carries an incentive payment to and the payments business as such.

We've spoken about it before, performed very well, and that also has got an element of variable costs, and that together gives you the overall picture for Q1. And again, what I said before stands, when you look at it and you take the cost of revenue over revenue over the quarters, I expect this to moderate.

[Luis Camino, executive]

With regards to Western Europe, I mean, mainly we mentioned already is the impact of Eastern. There were also a number of strikes in some of the airlines here in Europe, and they are, in my view, the main 2 effects when you compare the first quarter with the last quarter of last year.

[Operator]

The next question comes from the line of Gianmarco Conti from Deutsche Bank.

[Gianmarco Conti, analyst]

Yes. I have a few on my side as well. Maybe starting and reiterating on the North American direct connections. From where you stand now in the quarter, should we expect it to continue for due to perhaps in the rest of the year? Or do you see this as more of a one-off effect?

And secondly, could you talk a little bit about the visibility you have in each of the segments with regards to both new contracts you expect to sign as well as upcoming renewals?

And then finally, if you could give me some color on your plan for capital use either in regards to share buybacks or future M&A. Is there anything in the pipeline that you anticipate using funds throughout the year to perform or perhaps do more share buybacks?

[Luis Camino, executive]

Let me start again with the first question. I mean look, we have provided you some views of how we see the evolution of the volumes. And of course, this considers that the impact of these effects. And therefore, yes, there is some impacting the growth. Of course, it's not one quarter. I mean, usually, you have the impact in the growth is for 4 quarters, but then we have considered already in the figures that we have provided before, and it is already there.

[Till Streichert, executive]

On the financial policy question in relation to cash, leverage and way forward. So everything that we've said stands, and I would just reiterate for the second quarter. As a reminder, the Vision-Box acquisition has been falling into that. So for the second quarter, I expect a marginal increase in net debt-to-EBITDA and from zero to decrease. And as we've said before, when we reach the lower level of our net debt-to-EBITDA 1x to 1.5x and again, barring M&A because, obviously, we are continuing to look for opportunities to use also our cash resources and strength of balance sheet to grow the core. But barring M&A, we would also consider again to return back to shareholders through share buyback further down the line.

[Luis Camino, executive]

And I believe your second question was related to the contract situation. I mean, look, it's difficult to be very concrete. The situation is healthy. We keep signing deals as we are announcing on an ongoing basis. I mean our goal is to keep growing, and we are very pleased with how things are evolving and our pipeline in all our different businesses. And as they become a reality, we will keep informing you to keep the growth of the company in the years to come. But I will say very healthy this year in the good prospects.

[Gianmarco Conti, analyst]

Okay. Just to be very clear on the first question, you do expect it to be -- to have a similar or somewhat of an impact in Q2, right, with regards to the reconnections in the absolute case...

[Luis Camino, executive]

Yes, yes. The answer is yes. Yes.

[Operator]

The next question comes from the line of Nicolas David from ODDO BHF.

[Nicolas David, analyst]

Yes. The first one is regarding NDC, now that you're embarking more and more airlines and you have signed this contract with Expedia. Could you give us an update on your view on the impact of the move towards NDC on the gross profit at group level? Do you still think that it's at least neutral or positive?

And my second question would be a follow-up on this direct connect. So I understand that you have taken assumption of equal impact on Q2. But you see on the market some more initiatives, which are not live yet, but with [indiscernible] H2 or next year have further impact on your local bookings.

And my last 1 is a very -- is a question for about G&A. Should we see the reduction of G&A percentage of sales in Q1 as a good indicator for the trend going forward?

[Till Streichert, executive]

Let me start with the P&L impact of NDC. So look, what we've explained before, from a logic point of view is applicable and stance. At a unitary level, you may see certain changes -- at a revenue level -- at the revenue per booking or booking fee level, then countered by the incentive side at the net level, and this is also what we have explained before, as NDC starts scaling more and more, we will talk about that more frequently. At the net level, I expect it to be neutral to slightly positive. .

But as Luis has already introduced in terms of volumes and volume contribution in our booking mix, NDC is at the moment still very small. Therefore, you won't have much of an effect in that. But going forward, I expect that we'll speak more about that and give you also more color as volumes scale, but that's, as of today, not the case yet.

[Luis Camino, executive]

With regards to the question about direct connect, I mean, as we explained to you, this is something that may always happen. We don't see that have a sizable impact this year, and this is why we have provided you the views of how we see things. I mean, again, this may happen, but we don't expect that to have an impact in our projections for this year.

[Till Streichert, executive]

Nicolas, you had a third question, which we weren't fully able to understand about cost of revenue again or as an indicator, would you mind please...

[Nicolas David, analyst]

I think it was about -- yes, it was about depreciation and amortization, which is down as a percentage of sales in Q1. Is it a good indicator of the trend for the next quarters next year? Or it was a bit of a one-off depreciation of amortization.

[Till Streichert, executive]

No. So as I said before, I -- you can -- on where we are in Q1 at the moment. I expect a deceleration or moderation if you just look at cost of revenue over revenues. okay?

[Nicolas David, analyst]

I'm talking about G&A, depreciation and amortization, which are quite...

[Till Streichert, executive]

Depreciation, now we've got it, apology. Depreciation and amortization, okay.

So look, you can start off from where we are right now and then basically follow a little bit the trend as basically CapEx evolves. And as I said also, we've had certain effects in our depreciation and amortization lines that are related to our migration to cloud where we've taken certain accelerations over the past quarters. Of course, once they come to an end, you would also see the benefit of that coming through, okay?

[Operator]

Our last question comes from the line of Victor Cheng from Bank of America.

[Hin Fung Cheng, analyst]

I just have a quick follow-up on thinking about revenue per booking. Maybe can you talk a bit about the dynamics there? I'm thinking about the direct connect impact, is that positive or negative? And then you separate one is thinking about Amex GBT merging with CWT. And so broadly, just consolidation within the TMC space, how do you think that will impact maybe the competitive positioning and bargaining power with GDS' and Amadeus specifically?

[Till Streichert, executive]

And let me answer the first one. And look, on the revenue per booking, it's true and we've said that before, you have a positive effect from customer mixes in the revenue per booking evolution, which is benefiting also from the trends that we've seen over the past 2, 3 quarters. But let me add as well, I do expect that in the quarters to come pretty much purely due to the comps. If you look at last year and you see the step-up evolution from Q1 into Q2, Q3, Q4, I expect that revenue per booking is moderating at a growth rate, okay? It will still be strong. But due to the comps versus last year, I expect the growth rate to come down a bit, okay?

[Luis Camino, executive]

With regards to mix and customer both of them are customers of us. We have a very close relationship with them. And therefore, we need to see how the future looks like, but they are already big enough. Of course, the bigger the travel agency, the tougher the negotiation, but this is not -- it's always been the case in the past and they are already big enough. So we will deal with them and hopefully, we'll be able to convince them to give us incremental business.

[Operator]

There are currently no further questions. I hand the conference back to you, speakers.

[Luis Camino, executive]

So thanks a lot for joining the call and looking forward to seeing you in our Capital Markets Day. Thank you.

[Operator]

Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.