Amadeus It Group Sa Ord

Good morning, ladies and gentlemen, and welcome to the Amadeus H1 2024 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press the star zero for the operator. I would now like to turn the conference over to Luis Maroto, President and CEO. Please go ahead.

Good afternoon and welcome to our 24 first half results presentation. Thank you for joining us today. I'm joined by our business heads, Desius Palmorbida and Paco Perello-Fao. I will start today's presentation with a general overview of our most important developments. Desius and Paco will cover the business reviews for our segments. I will end by reviewing the key financial aspects. Our CFO executive search process is progressing well. We'll provide you with a more detailed update as soon as possible. Before we get started, I would like to thank you for your participation at our recent Investor Day in London. Over the years, we have debated Amadeus many times. Yet again, we had a highly productive and in-depth discussion on our business and growth opportunities. We look forward to delivering on our commitments in the years to come. We stand to slide forward for an overview of our results. 2014 caught strongly for Amadeus, and this evolution has continued into the second quarter, where we continue to see double-digit growth rates, as well as EBITDA and EBIT margin expansion. In the first half of the year, Amadeus grew revenue increase by 13%, EBITDA grew 15%, EBIT grew by 19%, and adjusted profit expanded by 22%. Financial performance over the first half supported robust free cash flow generation of $530 million, resulting in net financial debt of $2.6 billion at June 13, 2024, representing one 15 times last 12-month VDA. This strong evolution in the first half of the year is in line with our expectations, and we confirm our outlook for 2024. Our results have been supported by positive development at air distribution, RIT solutions, and hospitality and other solutions, which we will review shortly. We continue to advance well on our strategies across Amadeus as we build for the future. At RNIT, we are leading the way for the airline retailing transformation with our next-generation RNIT product suite, Nevio. Amadeus Nevio is a traveler-centric retailing platform offering next-generation retailing capabilities to the airlines, including offers and orders backed by fully flexible, future-proof cloud-native solutions and the latest advances in AI. It's an industry evolution that will require years of focus and dedication, but we are well positioned to drive this transformation and to support the industry's transitions. We have three contracted customers to date, Finnair, Saudia, and British Airways, and we expect to continue to expand this list. On the back of British Airways' Nebio announcements last quarter, we were pleased to announce this quarter that British Airways will, in addition, implement Amadeus Network Revenue Management. The airline retailing transformation will further drive NDC penetration. We believe we have the most advanced NDC technology in the industry and that we will play a key role in scaling NDC adoption. We are advancing to make NDC possible at scale through the GDS. We have 60 NDC airline agreements signed. We represent half of the bookable inventory in our system and 27 implemented to date. As NDC content made available through our platform increases, We believe we will be capturing more and more NDC bookings in the future. Our goal is to become the undisputed NDC aggregator for airlines and travel agencies. In hospitality, we were very pleased to announce that ACOR, our leading hospitality group, will implement Amadeus Market's leading cloud-based central reservation system for its extensive portfolio of properties globally. Desius Zampacco will now run us through the key developments at each of our reported segments.

Hello, everyone. This is Desius. We now turn to slide five. Happy to be speaking to you again. And we start with the air distribution commercial highlights. During the first half of 24, we signed 32 contracts, both new contracts and renewal agreements. further strengthening our content offering to travel sellers. As Louise was saying, we're advancing well on our NDC strategy. We see the adoption of NDC in our distribution business gain traction gradually, and by doing so, we believe that Amadeus will continue to strengthen its position as the leading enabler of indirect airline distribution. Canadian WestJet has been the latest airline to sign an NDC agreement with Amadeus, and also in the second quarter, We had Tunisia Air, Iva Air, and Wellings NDC content that have been made available on the Amadeus travel platform. On the travel agency side, the eTravel Eye Group, a leading global technology provider for flights, they are powering Booking.com and have brands such as MyTrip, GoToGate, and Flight Network. They have chosen Amadeus as its primary NDC content provider. In addition, a selection of eTravelize group content, including its virtual interline content through its subsidiary TripStack, will be made available on Amadeo's travel platform. Moving to the corporate side, we have now Amadeo's NDC offering will now be available to concourse travel online booking tool. And finally, we continue to increase the number of corporations signing with Citrix Solutions. International Hotel Group Hotels and Resorts will be a customer of Citric Travel, and we have also signed an expansion of our partnership with FCM Travel, adding Citric Easy to its portfolio of solutions. Now, moving to the volume evolution. In the first half of 24, Amadeus bookings grew by 2.9% versus the first half of 2023, supporting the revenue growth of 10.7%. In 2024, as expected, we have seen a normalization in our booking growth evolution compared to the evolution in 2023, which benefited from air traffic recovery. In North America, our bookings continue to be impacted by volumes channeled through direct connections between one very large online travel agency and a few large carriers in North America, impacting our local bookings in the region, although having a marginal revenue growth impact as it relates to low-fee local bookings. Our bookings were also impacted by the bankruptcy in the second quarter of a large European tour operator, FTI Group. So excluding the FTI Group tour operator bankruptcy, the holiday effects, and the no-run local booking effect, we estimate our booking growth in the second quarter at 7.4%, and 7.8% in the first half versus prior year. Over the six-month period, Western Europe and North America were our largest regions, and Asia Pacific was our best-performing region, expanding 25.1%. For our expected Q3 and Q4 volume evolution, we saw some comparison versus 2023, we expect the volume growth in Q3 2024 to be softer than Q2 2024. The volume growth in Q4 2024 will be stronger than in Q2 2024. So the reason for that is that in Q3 last year, we have had a very strong recovery in August. And then in Q4, we had a concentration of effects that one will lap, which is the NORAM local booking effect, and a one-off effect, which was the crisis in the Middle East where we had a spike in cancellations. With that, let's move to slide six for airline IT solutions. I'll start again with the commercial highlights, which is during the second quarter, several of our customers have decided to expand their airline IT solutions relationship with us. We're very pleased to announce that British Airways, a recent Navio customer, signed for Armadillo's network revenue management module. In a joint solution center, our teams will collaboratively evolve network revenue management features and co-design new revenue management capabilities to optimize commercial decision-making. We had several other upsells in airline IT with customers such as Tai Airways, Jeju Air, Air Austro, Air Cairo, and EVA Air acquiring and expanding modules with us. Regarding airport IT, during the second quarter, we continued to expand our customer base, and we had several upsells from our airport IT offering. We signed with Malaysia Airports to deliver our airport passenger processing solutions to six airports in Malaysia, and we had other signatures in the quarter, including Brisbane Airport, Avinor, which operates Norway's 44 state-owned airports, Menzies Aviation, Sunpeat Clearwater International Airport, and Pittsburgh International Airport. So now we move to passenger boarded volumes. So in the consolidated first half of 2024, Amadeus passengers boarded increased by 14% relative to the first half of 2023. driven by an organic PV growth of 12% on the back of global air traffic growth in the period. Added to, I'm sorry, I lost my thought over here, driven by the organic growth of 12% on the back of global air traffic growth in the period. Organic growth was complemented by a net positive effect resulting from customer implementations. primarily Etihad Airways, ITA Airways, Hawaiian Airways, Bamboo Airways, and Elysian Air, all of them implemented in 2023, and Vietnam Airlines in the second quarter of 2024. In the second quarter of 2024, passengers boarded expanded by 12%, driven by an organic growth of 10%, and the net positive non-organic effects from customer implementations. Amadeus PB organic growth softened in the second quarter, relative to the first quarter, as air traffic growth advances through the recovery curve and trends towards normalization. And with that, I now pass to Paco for the hospitality segment dates.

Yes, thank you, Odysseus. Good afternoon. So this is Paco, and I'm very pleased to be here. Please turn to slide seven for an update on our HOS segment. Our hospitality and other solutions revenue grew by 13% in the first half of 2014. both hospitality, which generates the majority of their revenues in this segment, and payments had a strong evolution and delivered double-digit growth versus the prior year. On hospitality, we were pleased to announce in the second quarter that Accor, a world-leading hospitality group, will implement Amadeus' market-leading cloud-based central reservation system for its extensive portfolio of properties globally. Also, Amadeus is incorporated generative artificial intelligence, GenAI, into an innovative new chatbot for its business intelligence suite, starting with our product called Agency360+. The Amadeus Advisor chatbot, powered by Microsoft's Azure OpenAI service, builds on the strategic partnership between the two technology companies to foster collaboration and innovation across the entire travel industry. Moving to payments, We have new signatures, such as with Thai Airways, which contracted for the exchange payment platform from Outpace, and Workano Group, one of Africa's largest travel sellers, which established a new partnership with Outpace for virtual payments with a B2B wallet. Also, we have partnered with eTravelEye Group to allow airlines and other travel stakeholders using Outpace's exchange payment platform to benefit from eTravelEye Group's risk management solution for precision. And with that, I pass back to Luis.

Thanks, Paco. Let's go to slide nine to review our revenue evolution. Our group revenue grew 13.4 percent, supported by double-digit growth across our different segments. Their distribution revenue was 10.7 percent of prior year, primarily driven by the booking evolution, as you described, by a revenue per booking growth of 7.6%, fundamentally driven by a positive booking mix effect and pricing effects, including impacts from inflation and yearly price adjustments, contract renewals, and new agreements. With regards to RIT solutions, revenue grew by 17.6%, driven by the PV volumes evolution, coupled with a 3.2% higher revenue per PV. The increase in the revenue per PV primarily resulted from positive impacts from the inflationary or price adjustments, upselling of incremental solutions, and Altea New Sky's customer mix, as well as fast growth of our airline expert services business and an increase in airport IT revenues supported by the consolidation of VisionBox. Regarding hospitality and other, revenue was 13.2%. above prior year, driven by strong performances of both hospitality and payments on the back of customer implementations and volume expansion. Within hospitality, the key contributors were sales and event management, service optimization, and another CRS. Within hotel IT, digital media and distribution revenues backed by an increase in transactions and business intelligence supported by customer implementations. Within payment, All its revenue lines reported strong growth rates, also supported by the consolidation of Voxel. Finally, we expect the hospitality segment revenue to grow faster in second half than in first half versus prior year, supported by customer implementations and increased transactions, as well as Voxel revenue contribution. Let's move to slide 10 for the segment contribution and the net indirect costs evolution in this first half versus the first half of last year. The distribution's contribution grew by 13.4% as a result of the revenue growth I have just described, and a 98.2% cost increase which resulted from higher variable costs driven by the bookings evolution and other effects such as customer and country mix. A fixed cost growth largely caused by increased resources, mainly in the development area, and a higher unitary personal cost. Contribution margin of the segment expanded by 1.2 percentage points to 48.5%. NIT solutions contribution increased by 17.9, resulting from the revenue evolution described before and cost growth of 16.7%. Driven by R&D investment expansion, focus on the enhancement of our portfolio for airlines and airports, customer implementations, and our fast-growing airline spare service business, as well as the consolidation of vision box and growth in other cost lines to support the overall business expansion. R&D solutions contribution margin expanded by 0.2 percentage points to 71.4%. Regarding hospitality and other solutions, contribution was 14% above prior year as a result of the revenue growth prescribed before a higher cost by 12.7%, resulting from the higher variable costs primarily driven by the expansion of our digital media distribution and serious hospitality businesses, as well as the strong performance of our payments B2B wallet solutions. An increase in fixed costs fundamentally caused by expanded R&D investment dedicated to the evolution of our hospitality and payment solutions portfolio and to customer implementations and other cost lines to support the overall business's expansion and the consolidation of Voxel. Hospitality contribution margin rose by 0.3 percentage points to 34.2%. Finally, net indirect costs. were 16.9% higher, mainly resulting from an increase in transaction processing and cloud migration costs, as a result of the volume expansion and our progressive shift to the cloud, and to a lesser extent, a unitary personal cost increase. Slide 11, we review our EBITDA EBIT and profit evolutions. Please note we are excluding acquisition-related costs associated with VisionVox and Voxel acquisitions of $3 million in aggregate before taxes incurred in the first half of this year. In the first half of 2024, our EBITDA was 15% higher, and our EBITDA margin expanded by 0.6% to 39.4%. Our EBITDA performance resulted from the revenue evolution I described before, a higher cost of revenue, and an increase in personal and other operating expenses. Cost of revenue grew by 12.6%, resulting from our distribution variable cost growth, driven by booking growth and other factors, including customer and country mixes, as well as hospitalities, higher volumes and payments, B2B wallet, business expansion. Cost of revenue growth in quarter two softened versus quarter one due to non-recurring and non-transaction related effects in the base, with a broadly neutral impact on first half cost of revenue growth. cost of revenue over revenue in the second half to be similar to the first half. Our P&L fixed costs increased by 12.2% mainly resulting from increased resources, particularly in our development activity, to support our end investments coupled with a higher unitary cost and higher transaction processing and cloud migration cost. We expect these costs in the second half to be above the first half. As we stated as part of our expectation for the year, with spare cloud fixed cost growth in 24 to be lower than in 23, excluding the vision box and box cell consolidation impact. Below the beta line, DNA expense increased by 6.6%, 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 a lower depreciation expense from a reduction in hardware investment driven by our shift to the cloud. D&A expense growth is expected to accelerate in the second half relative to the first half. The increase in EBITDA coupled with our D&A expense evolution drove EBIT up by 18.6% and EBIT margin expanded by 1.2% as points to 28.5%. Finally, our adjusted profit grew by 22% as a result of EBIT growth and higher net financial expenses and taxes. On slide 12, we can review our R&D investment and CAPEX in the first half. R&D grew by 15.5% focused on the evolution of our portfolio for airlines, including Enevio, our hospitality platform, financing our solutions for travel sellers and corporations, as well as for airports, and of our payments solution portfolio. Migration to the cloud and our partnership with Microsoft, and bespoke consulting services provided to our customers and customer implementations. In the first half, our capex increased by 15 million, or 5%, mainly driven by higher software capitalizations, partly offset by a 17 million collection from a sale and leaseback transaction over our data center in Irving. Our capex represented 10.6% of our revenue in the first half. We expect CapEx to grow faster in the following two quarters relative to the first half evolution versus prior year. Finally, we review our cash flow generation and leverage. In the first half, we generated 530 million free cash flow, representing 20% versus prior year. We exclude the non-recurring tax-related collection of 43 million from the 23 comparison base. This free cash flow growth resulted from the increase in EBITDA and improving change in working capital outflow and higher CAPEX and taxes. We expect free cash flow in quarter three to be below prior year due to an unusually high change in working capital inflow in the third quarter of 2023 base and higher CAPEX than prior year. And we expect faster CAPEX growth in quarter three than in the first half of the year. In the last quarter, in the quarter four, we expect free cash flow to resume positive growth. Net debt amounted to $2.6 billion at the end of June, $444 million higher than at the end of December due to the acquisition of treasury shares and the share repurchase programs, the entering dividend payment, and the acquisition of Vision Box and Boxel, partly offset by our free cash flow generation. Leverage amounted to 1.15 times net debt to EBITDA at the end of June. Thank you. And with this, we have finished the presentation and are ready to take any questions you may have.

Thank you. And ladies and gentlemen, if you would like to ask a question at this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star 2. Once again, if you would like to ask a question, please press the star 1. Your first question comes from the line of Adam Wood with Morgan Stanley. Please go ahead.

Hi, Louise. Thank you very much for taking the question. I've got two, please. The first one is you obviously reiterated the guidance for the year today, but I guess things have changed a little bit in the industry since you first gave that guide. You've had a number of profit warnings and more cautious outlooks from the airlines. I guess normally the pricing buffer that the airlines would have would protect you because they can lower pricing to protect load factors. But it does seem that a number of the airlines are actually wanting to lower capacity rather than lower pricing to protect that pricing. Could you just talk a little bit about how you look at the market today? Is the capacity growth in the second half still comfortable for you to be able to hit those numbers? Or are you looking at a different mix in terms of pricing and volumes in your business to be able to get to where you've guided? And then secondly, looking at the software market more generally, I think, again, in the first half of the year, we've seen a meaningful increase um contraction pressure on on software spending across the world um you've obviously got a very specific exposure in travel and actually it seems that the air company the airlines and hotels are willing to spend more aggressively because of the transformations that are happening could you just talk a little bit about how you see budgets in those industries you know versus the pressure we're seeing elsewhere and is that view that because of the transformations that are happening there is budget and you're not seeing pressure that other software companies are seeing thank you

Yeah, with regards to the first question, I mean, again, we are sticking to our guidance. The impact we expect to be more on the yield from some airlines based on the comments that have been made. I mean, still the projections in terms of traffic are healthy for the full year figures. Of course, we need to see how things are going to evolve. As you know, it's much more difficult To adjust capacity and pricing, it will depend, of course, on the delivery of the airlines, and there could be some adjustments here and there. But overall, even if there is some small adjustment in the total capacity, we feel confident that we'll be able to achieve the figures that we have provided you. Of course, there may be always ups and downs compared to the volumes, the pricing, the different business units. But after the results we have seen in the first half, again, we feel confident for the rest of the year based on our current view of the situation moving forward. With regards to the software, as you know, the investments are long-term for many of these transformations. We have been signing contracts with the majority of the players in the industry. We have not seen, for the time being, a decision not to continue doing so. Again, these are medium-term investments. So, for the time being, things are business as usual. Again, depending on the final results of the different players, there may be some adaptation moving forward, but this is not what we have seen. Again, I have this with me today. That means customers... much more often than I do, but you can set the future view.

Yes, for now, I think our pipeline continues to be strong. We see many RFPs coming out, and as we're discussing here, maybe IT spend can be split between what is build and what is run. So in terms of run, we are a software as a service, so it is really related to business transactions that are happening, and they continue to happen. And then on the build side, usually these are long-term investments associated to CapEx, and we continue for now with strong appetite for customers to invest, modernize, and see the benefits of implementing the systems. That's very helpful. Thank you.

And your next question comes from the line of Briast with UBS. Please go ahead.

Yes, good afternoon. A couple from me. Just talking about the distribution business, IATA's figures for May suggest that international travel is up, RPKs are up 19%. I think in Latin America, they're up 17%. And I'm just trying to square that with the volume recovery. In Latin America, I think volumes have now shrunk for five quarters. What's happening there and more broadly with the the expected recovery of international travel flowing into distribution. And then just looking at your regional sales, I noticed that in the US, revenues dropped 10% in the first half year on year from 625 million to 565 million. Is this all related to the distribution business or is there something else at play there? Thank you.

Maybe let's start with the question around the RPKs and their evolution. So when we analyze that regarding our volumes, we do see, let's say, a more favorable mix of the Amadeus business towards global versus domestic. So that we can pick up. In terms of how that translates into premium traffic and how much of that can we see on the GDS, I think that has been... The historical moment or the historical trend where we see part of that in our numbers and does the underlying growth that we have mentioned overall consolidated for the first half at 7.8 and particularly in the quarter being 7.4.

I think that now the second question regarding the revenue. Let me try to clarify because, look, what you are talking about in terms of revenues is not exactly reflecting our business. This is related to our legal entities, so it's not the full amount we bill in the U.S., so you should refer more to the overall revenues. you know, details, and also we provide you with the bookings. It is true that the bookings in the U.S., I mean, you have seen a drop in the first half. We have mainly updating you about that, and this has to do with the direct connects that we have been explaining to you in the different calls. But I will not take this revenue information. It's more based on, you know, legal entities you know, the way we do our internal transfer pricing as the main reference to really conclude about the business. That's not the case.

Okay. And on Latin America, I mean, why are the volumes shrinking for so long?

So in Latin America, we have a similar situation as we have in North America, where we have direct connects that are being implemented between large airlines with large travel agencies. Again, the impact of the That in volume is visible, but in terms of revenues, it is not very material. As this, we're talking about domestic bookings that don't impact very much. That's why we always go back to the underlying trend. We feel that those effects will start lapping, mostly as of Q4, and thus our expectation of acceleration of volumes in Q4. With a Q3, there's going to be softer, but a Q4, we're going to have an acceleration.

Okay, thank you.

And your next question comes from the line of Stan Merck with Mark Barclays. Please go ahead.

Great. Good afternoon. Thank you for taking my question. I have a few modeling questions. So CapEx has been 10.5% of revenues in the first half, and you expect this to increase in the second half. Given the C&D guidance for CapEx ratio of 11% to 13% with a declining trend, When should we model the peak and cap expense relative to revenues? And is the 13% what you expect as the base case, or is it just one possible scenario if you have lots of implementation at the same time? And then secondly, it would be helpful if you could comment if we should expect any difference in phasing in terms of the cost of sales between Q3 and Q4.

Okay, look, just high level. In principle, not to the second question, but again, look, at the end, it's not exact figures. There are always movements between countries. today should be quite similar. And in terms of CAPEX, again, we have provided you a guidance for the three years. We also said that 24 will be higher than 25 and 26. You have seen the results of the first half. So as we are maintaining completely our guidance, you can really make your assumptions about the CAPEX for the second half, but we will not be more detailed on that.

Okay, that's helpful. Thank you.

And your next question comes from the line of Alex Irving with Bernstein. Please go ahead.

I'm sorry.

If you can speak a bit louder, we cannot hear you.

Sure. Is that any better?

Yeah, yeah. That's much better.

All right. So good afternoon. Two from me, please. First on your revenue for booking trends. strong performance in the quarter. Can that continue or is that going to moderate from here? Where does it need to get to to hit your 2026 targets of a 6% to 9% revenue CAGR? Second, specifically on North America, we've seen some significant changes over the last couple of months in the way that American Airlines approached NDC incentives. But how have your conversations with U.S.-based travel agents changed over the past since we last spoke? Has the desire to implement NDC content diminished or is that as strong as it was?

Yes. So let's start with the second one, which is the relationship with travel sellers in North America. I think that the appetite of travel sellers to implement NDC, they continue. What we believe it is favorable to us, it's a conversation around more using our NDCX solutions than Direct Connects, because Direct Connects have an element of... limited possibility of scaling, as you have reached a certain number of direct connects that is difficult for the travel seller. And the fact that we have signed 60 airlines with NDC and that content is going to be available with NDCX, we see good demand and good traction. Now, in terms of adoption, of course, the less content differentiation you made between the two, then it means that we may see less adoption of NDC in North America specifically because of the change of commercial stance of American Airlines. But I find that it's going to be, let's say, a very small impact within the quarter because the overall trend is of adoption of NDC, and we're going to see that continue on the quarters to come independent of American Airlines because many other airlines are having NDC strategies, and that trend will continue.

So let me take the first question. I mean, as you know, we have guided you for three years CAGR of 6% to 9%. But we also guided you at the beginning of this year with a guidance for the distribution business of high single to low double. So the answer is yes. We expect to really be slower the growth in distribution as we are you know, evolving towards a more normalized traffic in the years to come based on the projections of IATA and other sources. And therefore, yes, there will be a softener, still a very healthy growth, but not at the levels that we expect to see during 2024. All right.

Thank you.

And your next question comes from the line of Victor Cheng with Bank of America. Please go ahead.

Hi, good afternoon, everyone. A couple, if I may. So first of all, on kind of the bookings outlook and maybe the Q2 exit rate, I think you said you're 4% year-to-date in May. And obviously, June has some negative workday effects and FTI bankruptcy. But what are we looking in terms of July? And actually, if I think about Q3, there should be some positive effects. So are you Is that included when you say Q3 will be softer versus Q2? And if I think about Q4 as well, I think, like you said, you know, the softer comps from NORAM will mean that Q4 will reaccelerate. But if I look at consensus, we have 8%, so that's still quite a bit of gap. And if you kind of only do 3%, 4% in Q4, that still implies a gap sequential slowdown. How should we think about Q4 then? And just on that point, I think Turkish Airlines is starting doing GDS surcharge in 1st of October as well. Is that something that you're factored in when thinking about Q4? And I guess that will be similar to Latin, where you would see kind of four quarters of slower growth before that annualizes. And kind of the second question I have is, I guess, what percentage of NDC bookings you still have currently? Is it still very small? And if I look at the broader industry, that seems to be ramping up quite massively. Should we expect the same, given you've signed the agreement already? Thank you.

Okay. Let's start with the second one. So we're seeing, as well, massive increase in terms of our NDC bookings, but yes, they're still on the low single-digit number. For us, as I think we have mentioned, this is very much neutral for us in terms of business model. It is a question of adoption. So the adoption of NDC goes depending on what is the commercial strategy of the airline, and how much they would like to make ADFACT or NDC more of a privileged channel. Those things change over time. We have just seen American Airlines that was putting a lot of emphasis on NDC adoption, and now they're taking a little bit of that emphasis out. So we'll see how it goes. Regarding the first question, which is the evolution between Q3 and Q4. So one thing you mentioned, which is Turkish Airlines, I think it is very early for us to position ourselves into what is going to be their approach. We have an agreement in place. We have renegotiations ongoing. I think once we have reached the stage where those negotiations are, let's say, concluded, then we're going to be able to provide more color on what happens specifically with Turkish. Now, in terms of why are we saying the Q3 is going to be softer and why Q4 is going to be stronger? So, We have just mentioned here that in Q2, the key element for the performance of the 3% has been June. And we had April and May where we had 4%. But in June, we had a working day difference. We had two working days less in June. And that has created the quarter to end up on 3%. As we move into Q3, we have visibility on July. July is trending well. It is slightly higher than what we had in Q2 so far. So July is performing well. But not in relation to the market, but in relation to our own numbers. That's why we're insisting on this point. We have had last year a very strong August. So therefore, we... or being, let's say, cautious in relation to our Q3 because compared to our own performance last year, we believe that Q3 is going to be softer in terms of growth than what was Q1 and Q2. But as the underlying trend, as we have explained, is stronger, we believe that in Q4 that is going to pick up because we're going to let the domestic bookings in our arm issue And we will continue to see the traffic expansion that we have seen in Q1 and Q2. So, yes, we are expecting growth that is going to be stronger than Q1 and Q2 in Q4.

Got it. Thank you.

And your next question comes from the line of Toby Ogg with JP Morgan. Please go ahead.

Yeah. Hi. Good afternoon, and thanks for taking the questions. Maybe just firstly, just on the margin evolution in the second half, obviously you're indicating fixed cost growth above the level seen in the first half. So could you just unpack sort of what's driving that faster rate of growth into the second half? And then also just what gives you the comfort around the guidance for the flat EBITDA margins, given that faster rate of growth? And then just secondly, on the hospitality segment, growth so far has been tracking at around 13%. and obviously your guidance for 2024 is for mid-teens. So that would imply an acceleration in the back half to hit that mid-teens rate of growth for the full year. So just keen to understand whether we should be thinking about an acceleration in the second half as realistic, and what would be the drivers of that acceleration? Thank you.

Let me start on Paco's compliment with me. I mean, the answer is yes. We have, I mean, the customer signatures, and we have... You know, always some seasonality in terms of the implementation of customers and the underlying growth, both for hospitality and payments. So overall, yes, you're right. We keep our guidance and we feel confident about that. It's on the projections we have today. Paco, do you have any color to the hospitality business? Not interested. And then with regards to the fixed costs, look, there are a couple of reasons. First, exactly the customers we have signed, and you know about Accor as an example. We are increasing some of the resources to deliver in all the projects that we have in place. We also have the implementation of... the impact of the acquisition, the biggest one being VisionBox in our running costs. But despite all these effects of increasing fixed costs, yeah, we feel confident about our flat EBITDA margin, including cloud. By the way, we are ramping up, and of course, this is also having an impact in our running costs. So the EBITDA margin flat is, we feel confident about that. And of course, excluding this implementation of the cloud, there will be an expansion of in our EBITDA margin.

Understood. Thank you.

And your next question comes from the line of Nicholas David with Adobe HAF. Please go ahead.

Yes. Thank you for taking my question. Actually, I have two. The first one is regarding North America. Actually, we see on the H1 basis bookings are down, but actually it looked like in Q2, interesting sequential improvement adjusted for seasonality is it a green shoot of the decision from American Airlines to mitigate its direct connect strategy or is just a change in the seasonality for this year compared to usual and what should we expect regarding that issue and still in North America but more on the PB side and regarding the Microsoft Microsoft cross-strike turmoil Should we expect some impact on your business in Q3? And it would be interesting to have your view on what the situation now as you are at the heart of the airline's IT ecosystem, obviously, and you are using Microsoft. So I think you are in a good position to understand and to give us insight about what happened. And my second question is about gross margin development. You had a nice year on your gross margin development in Q2. Could you give us a color about what drove this improvement versus Q1, which was more negative? And how do you expect it to be? More looking like Q2 or more looking like Q1? Thank you.

Let me try to cover the last two questions. Look, with regards to the gross margin, I mean, there are always impacts in one quarter or the other. And as we have said, we expect the rest of the year. I mean, these effects between quarter one and quarter two are more or less offsetting each other. So we believe that year to date is a good representation and estimation of what we expect moving forward. So I will not take the second quarter of the first quarter as, again, there are impacts in the base. And the overall performance of the business is what has allowed us lead to Manats, you know, this improvement in the gross margin. With regards to the crowd strike impact, no, we don't expect any impact to our business based on the figures. It's extremely, extremely difficult to really analyze, you know, when there is a cancellation or a movement, what is the origin of that. But overall, we have not seen in our figures of July any impact in relation to what happened with crowd strike to us. With regards to North America, let me start and see if you can complement. I mean, as you know, we have the impact of Easter in the second quarter, but we have also been doing well overall in North America, despite the fact that we had this particular impact.

Yes, in terms of visibility and the numbers, I don't think that there is any other effect. There are many commercial activities that are happening and things are going on in the North American market, but nothing that would be visible. Visible effects, we insist on Q4. where we're going to have this lapping of this very large OTA direct connect decision, and thus we're going to see numbers in North America changing visibly there because of that lapping.

All right. Thank you very much.

And your next question. Your next question comes from the line of Nunshin Nijari with Deutsche Bank. Please go ahead.

Hi. Thanks for taking my question. Again, I'm North America. I just want to understand this contraction that you saw in the first half. Are you expecting the same for the second half? And what would it take for it to go back to positive growth? And is this something that you expected when you were guiding for GDS? Thank you.

Let me start with the guidance. Yes, the answer is yes. All that has been considered in our projections. And again, as we are insisting we keep our guidance for the rest of the year, of course, it considers the current situation and our estimation for this MOHA, definitely.

In regards to North America, the way we see it, it is not a contraction. It is a continuation of three-quarters of an effect that started in Q4-23. So we'll see that lapping in Q4-24. And we go back to the underlying. So if we exclude the effect of death by reconnect, we have seen a positive evolution in North America. So we're saying once that effect is gone in Q4 and has left, we're going to see positive growth in Q4.

Thank you.

And that is all the questions that we have at this time. I would like to turn it back to Luis Morado for closing remarks.

So thanks again for joining us and your questions. I'm looking forward to talk for the third part of the results. And in the meantime, have a good summer period, the ones that are taking now holidays. Thank you very much.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.