Travelzoo (NASDAQ:TZOO) Q3 2023 Earnings Call Transcript

Travelzoo (NASDAQ:TZOO) Q3 2023 Earnings Call Transcript October 24, 2023

Travelzoo beats earnings expectations. Reported EPS is $0.16, expectations were $0.09.

Operator: Hello, everyone. Welcome to the Travelzoo Third Quarter 2023 Financial Results Conference Call. All participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. Today’s call is being recorded. The company would like to remind you that all statements made during this conference call and presented in the slides that are not statements of historical facts constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements are described in the company’s Forms 10-K and 10-Q and other SEC filings.

Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company’s website for important information, including the company’s earnings press release issued earlier today. An archived recording of this conference call will be made available on the Travelzoo Investor Relations website at travelzoo.com/ir. Now it’s my pleasure to turn the floor over to Travelzoo’s Global CEO, Holger Bartel; its Finance Director, Lijun Qi; and its General Manager, Travelzoo META, Arveena Ahluwalia. Lijun will start with an overview.

Lijun Qi: Thank you, operator, and welcome to those of you joining us today. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir. Let’s begin with slide 4, Travelzoo’s revenue, operating profits and a member count all increased year-over-year. Our consolidated Q3 revenue was $20.6 million, up 30% from $15.8 million in the previous year. In constant currencies, revenue was $20.2 million, which is an increase of 27% year-over-year. Operating income, which we as management call operating profit increased 1,039% year-over-year, Q3 operating profit was $3.1 million, or 15% of revenue up from $273,000 in the prior year.

As of September 30, 2023, we had 31.2 million unduplicated members, compared to 30.5 million as of September 30, 2022. Side 5 shows that Travelzoo’s year-over-year revenue growth accelerated further compared to the previous quarter, as well as last year. Year-over-year growth rates were higher this quarter in all business segments when compared to growth in the previous year. On slide 6, we go into more detail about the revenue and our operating profit of our two largest business segments. North America and Europe. North America segment revenue increased $2.9 million from $10.5 million to $13.4 million. The operating profit in North America was $3.0 million in Q3 compared to an operating profit of $1.0 million a year ago. Europe segment revenue increased $1.5 million from $4.5 million to $6.0 million.

Europe had an operating profit of $267,000 in Q3, compared to an operating loss of $551,000 in the prior year. On slide 7, you can see that our GAAP operating margin was 15% in Q3, up from 2% in the same period last year. The operating margin of 15% in Q3 is much higher than before the pandemic. Before the pandemic, Travelzoo’s reported operating margin was much lower because of losses from our Asia Pacific business segment. In March 2020, Travelzoo decided to make Asia Pacific a licensing business going forward. Now, operating profits shows the true profitability of Travelzoo in North America and Europe. Slide 8 shows that in North America, the GAAP operating margin remains high at 22%. On slide 9, we provide information on non-GAAP operating profit, as we believe it better explains how Travelzoo evaluate performance.

Q3, 2023, non-GAAP operating profit was $3.9 million compared to non-GAAP operating profit of $1.1 million in the prior year. Slide 10 provides more information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide 11, we maintained a solid cash position even after repurchasing 1 million Travelzoo shares during the quarter. As of September 30, 2023, consolidated cash, cash equivalents and restricted cash was $16.6 million, a decrease of $4.0 million from September 30, 2022. Merchant payables decreased to $14.5 million from September 30, 2022. Slide 12 and 13 detail of a revenue by business segment. The North America business segment saw a year-over-year revenue increase of $2.9 million. It was driven by revenue from travel.

Revenues from local consisting of local entertainment experiences, are still expected to recover from the pandemic. Turning to slide 13, the Europe business segment saw a year-over-year revenue increase of $1.5 million. It was driven by revenue from travel. Revenues from local are still expected to recover. Slide 14 show total revenues compared to operating expenses. Most of the companies are pretty expensive except for marketing, a fixed in a short term or mid-term. We believe we continue to fix low costs relatively low in the foreseeable future while revenues are expected to grow. Higher revenues would adjust increase margins. For Q4, 2023, we currently expect growth in revenue to continue year-over-year. Now I turn over to Holger.

Holger Bartel: Thank you, Lijun. Year-over-year revenue growth accelerated from Q2 to Q3 again, we will continue to leverage travels with global reach, our trusted brand and a strong relationship with top travel suppliers to negotiate more exclusive offers for our members. It is in times of large increases in travel prices that Travelzoo is most valuable for consumers. Travelzoo members enjoy high quality travel experiences that represent outstanding value. With more than 30 million members, 8 million mobile app users and 4 million social media followers, Travelzoo who is loved by travel enthusiasts who are affluent, active and open to new experiences. Slide 15 provides more information about Travelzoo members. You see that 87% say they are open to new destinations and travel ideas.

Travelzoo members are true travel enthusiasts. Slide 17 provides an overview of what management and our global team are focused on. We want to reach and surpass pre-pandemic number of members and accelerate revenue growth, add more innovative exclusive benefits for travel enthusiasts to make the Travelzoo membership even more valuable. Utilize the higher operating margins to significantly increase EPS, grow Jack’s Flight Club profitable subscription revenue and develop Travelzoo META with discipline. At this point, I’d like to turn it over to Arveena.

Arveena Ahluwalia: Hello, everyone. At this time, we do not have any significant updates for Travelzoo META. That said, we started accepting payments from founding members in Q3, 2023. In addition, we are collaborating with best-in-class metaverse content creators on innovative, browser enabled metaverse experiences for founding members. Given the newness of this industry, we have been testing various content, member acquisition and marketing strategies to determine the channels that yield optimal results. We continue to use data to make important decisions and be strategic with the deployment of our investment as we build the service. I look forward to providing additional updates in due time. I am handing over to the operator for questions for Holger, Lijun and me.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Michael Kupinski with Noble Capital Markets.

Michael Kupinski: Thank you. I just have a couple of questions here. First of all, congratulations on your good quarter. The gross profit margins were better than expected in a seasonally slow quarter. I was just wondering if you have thoughts on the trajectory for gross margins going forward?

Holger Bartel: Hi, Mike. Yes, you are right, gross margins fluctuate a little bit due to seasonality. I think in the next few quarters or next year, you will see similar gross margins, as we have seen earlier this year.

Michael Kupinski: Got you. And then you have shown an increase in the number of subscribers for Jack’s Flight Club. And I know that this was an area that you thought had some significant growth potential. I know that the business started as flight deals, but have you — and you indicated plans to kind of transition that to more of a travel model. Has that happened? And what are you doing to reflect that strong subscriber growth? Can you add some color on what you’re doing in that segment?

Holger Bartel: Jack’s Flight Club continues to focus on alerting its members and subscribers about great airfare offers. And that’s what we continue to do. Now that recently, flights and airline prices have gone up so much as interest, as we have expected after the pandemic is over, there’s increased interest in people hearing about great flight ideas. And that’s probably, but that’s the main reason why the subscribers for Jack’s Flight Club up. And we are also happy that revenues are up even more. So finally, we are seeing strong momentum with Jack’s Flight Club which was the main reason why we invested in this business.

Michael Kupinski: Yes, and you at this point, you haven’t introduced that to the North America yet because that was originally the plan is to expand that.

Holger Bartel: That we have, but only to certain regions, not all over North America yet.

Michael Kupinski: Got you. The ratio of your cash to merchant liabilities continued to improve in the latest quarter. And I know that you repurchase some stock, which affected the cash position, but when do you anticipate, the cash will start to increase?

Holger Bartel: We accept cash to increase this quarter and again next year.

Michael Kupinski: Okay. And recently the US put a travel advisory for US citizens traveling abroad. Have you seen any impact on this at this point?

Holger Bartel: No, we have not seen any impact on it.

Operator: The next question is from Ed Woo with Ascendiant Capital.

Ed Woo: Yes, thank you for taking my question. What are you seeing out there in terms of hearing from your travel suppliers, the outlook for travel? It seems like they held up pretty well during the summer, even with some of the macro issues. What is their outlook heading into the holidays in 2024?

Holger Bartel: Hi, Ed. People continue to be interested in traveling after the pandemic. But that big surge of travel interest that we saw last year is dissipating a little bit. We are hearing particularly from hotels and airlines in North America that demand is slowing down and normalizing, is also probably result of the higher prices because prices for hotels and flights has gone up tremendously over the last two years. And that’s of course one of the reasons why our service which helps people find great deals is in great demand at this time. And we think that will continue. In Europe, we see generally particularly in the UK, we see consumers be a bit more cautious. Also looking for more values. And so I would say, to get back to your question the interest — the demand for the upcoming holiday season is still strong but slower than what checklist suppliers have seen last year.