Travelzoo Q3 2023 Earnings Call Transcript

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October 24, 2023

There are 7 speakers on the call.

Operator

Hello, everyone. Welcome to the Travelzoo Third Quarter 2023 Financial Results Conference Call. All participants have been placed 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. On the call to questions.

Operator

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 the forward looking statements are described in the company's Forms 10 ks and 10 Q and other SEC filings. On the call. 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.

Operator

On an archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir. On the call. Now it's my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel Finance Director, Lijun Chi and its General Manager, Travelzumeta Arvina Aluwalia. Lee Joon will start with an overview.

Speaker 1

Thank you, operator, and then welcome to those of you joining us today. Please refer to the management presentation to in the line with our prepared remarks. The presentation in PDF format is available on our Investor Relations site attrevazoo.com/ir. Let's begin with Slide number 4. Trevazoo's revenue, Operating profit and the member count all increased year over year.

Speaker 1

Our consolidated Q3 revenue was 20,600,000 Up 30% from $15,800,000 in the previous year. In constant currencies, revenue was $20,200,000 Which is an increase of 27% year over year. Operating income, which we as management call operating profit increased 1039 percent year over year. Q3 operating profit was 3,100,000 All 15% of revenue, up from 273,000 in the prior year. As of September 30, 2023, We had 31,200,000 unduplicated members compared to 30,500,000 as of September 30, 2022.

Speaker 1

Slide 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 revenues and our operating profit of our 2 largest business segments, North America and Europe. North America segment revenue increased $2,900,000 from 10,500,000 to $13,400,000 So operating profit in North America was $3,000,000 in Q3 to report that the company

Speaker 2

has been able to

Speaker 1

provide an operating profit of $1,000,000 a year ago. Europe segment revenue increased $1,500,000 from $4,500,000 to $6,000,000 Europe had an operating profit of $267,000 in Q3 to report 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 to report that operating margin was much lower because of losses from our Asia Pacific Business segment. In March 2020, Trebledu decided to make Asia Pacific a licensing business going forward. Now operating profit shows the true profitability of Trevazoo in North America and Europe.

Speaker 1

Slide 8 shows that in North America, the GAAP operating margin remained high at 22%. On Slide 9, we provide information on non GAAP operating profit as we believe it better explains how Trevazoo evaluates performance. Q3 2023 non GAAP operating profit was $3,900,000 compared to a non GAAP operating profit of $1,100,000 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.

Speaker 1

We maintained a solid cash position even after repurchasing 1,000,000 Trevigle shares during the quarter. As of September 30, 2023, consolidated cash, cash equivalents and restricted cash with $16,600,000 a decrease of $4,000,000 from September 30, 2022. Merchant payables decreased to $14,500,000 from September 30, 2022. Slides 1213, detail of our revenues by business segment. The North America business segment saw a year over year revenue increase of $2,900,000 It was driven by revenue from travel.

Speaker 1

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 $1,500,000 It was driven by revenue from travel. Revenues from local are still expected to recover. Slide 14 shows our revenues compared to operating expenses.

Speaker 1

Most of the company's Operating expenses except for marketing are fixed in the short term or midterm. We believe we can keep fixed 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.

Speaker 1

Now I turn over to Holger.

Speaker 2

Thank you, Lizhu. Year over year revenue growth accelerated from Q2 to Q3 again. We will continue to leverage Travelzoo's global reach, our trusted brand and the strong relationships 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.

Speaker 2

With more than 30,000,000 members, 8,000,000 mobile app users and 4,000,000 social media followers, to travel through 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. Travel team members are true travel enthusiasts. Slide 17 provides an overview of what management and our global team are focused on.

Speaker 2

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 to utilize the higher operating margins to significantly increase EPS, to grow, check Flight Club's profitable subscription revenue and develop travel to Meta with discipline. At this point, I'd like to turn over to Alvina.

Speaker 3

Hello, everyone. At this time, we do not have any significant updates for Travelzoom 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 enables 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.

Speaker 3

We continue to use data to make important decisions and be strategic with the deployment of our investment as we build this service. I look forward to providing additional updates in due time. I am handing over to the operator for questions for Holger, Rijun and me.

Operator

On the call.

Speaker 2

On the call.

Operator

Our first question comes from Michael Kupinski with Noble Capital Markets. Your line is open.

Speaker 4

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 in a seasonally slow quarter. I was just wondering if you had thoughts on the trajectory for gross margins going forward?

Speaker 2

Hi, Michael. Yes, you are right. The gross margins fluctuate a little bit on the call. Due to seasonality, I think in the next few quarters, the next year, you will see some similar gross margins As we have seen earlier this year.

Speaker 4

Got you. And then you've 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 its flight deals, but have you and you indicated to kind of transition that to more of a travel model. Has that happened? And what are you doing to to reflect that strong subscriber growth.

Speaker 4

Can you add some color on what you're doing in that segment?

Speaker 2

Next Slide 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 expected after the pandemic is over, there's increased interest in people hearing about Greatfly deals and that's probably the Probably, but that's the main reason why the subscribers for Czech Flight Club are up. And we are also happy that revenues are up even more. So Finally, we are seeing stronger momentum with CheckSlideClub, which was the main reason why we invested in this business.

Speaker 4

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.

Speaker 2

We have, but only to certain regions, not all of North America yet.

Speaker 4

Got you. The ratio of your cash to. Merchant liabilities continued to improve in the latest quarter and I know that you repurchased some stock, which affected the cash position. But When do you anticipate that cash will start to increase?

Speaker 2

We expect cash to increase this quarter and again next year.

Speaker 4

Okay. And recently, the U. S. Put a Travel advisory for U. S.

Speaker 4

Citizens traveling abroad. Have you seen any impact on this at this point?

Speaker 2

No, we have not seen any impact on it.

Speaker 4

Okay. That's all I have. Thank you.

Speaker 2

You're welcome, Michael.

Operator

The next question is from Ed Woo with Ascian Capital. Your line is open.

Speaker 4

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 are their outlook heading into the holidays in 2024?

Speaker 2

Hi, Ed. People continue to be interested in traveling after pandemic, But that big surge of travel interest that we saw last year is dissipating a little bit. We are hearing particularly for motels and airlines in North America that demand is slowing down and normalizing. Also probably a result of the higher prices because prices for hotels and flights have gone up tremendously over the last 2 years. And that's of course one of the reasons why our service, which helps people find great deals, is in to have great demand at this time and we think that will continue.

Speaker 2

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 demand for the upcoming holiday season It's still strong, but slower than what the travel suppliers have seen last year.

Speaker 4

A follow-up question. Have you seen any noticeable trends in people downgrading hotels from 5 Star to Core Star? Or instead of taking a 1 week vacation, taking 5 days, shortening your vacation, just to get the budget lower. Have you seen any noticeable trends in that?

Speaker 2

We have not seen that really, What we have seen is a higher number of 5 star hotels that are looking to work with us because they are not as busy as they were last year or in summer. So that offers great opportunities for our members because we then negotiate with these hotels exclusive offers and that allows our members to continue to enjoy, for example, 5 star hotels, what they would normally pay when they went to a 4 star hotel. But we have not seen any indication that there's less demand for upscale properties.

Speaker 4

Great. Well, thank you for answering my questions and I wish you guys good luck. Thank you.

Speaker 2

Thanks, Ed.

Operator

The next question is from Steve Silver with Argus Research. Your line is open.

Speaker 5

Thank you, operator. And let me offer my congratulations on the quarter as well. My first question, I guess, is related to the Meta. Arvina, you've mentioned that this quarter was a little light in terms of movement in the launch and tracking those types of metrics. Just trying to get a sense as to whether we should be thinking about, just looking for statistics on how the launch is going.

Speaker 5

Are you really thinking in terms of a quarter over quarter basis? Or are we looking at maybe something a little to gear towards next year just in terms of the signals that you're looking for in order to invest in the business a little bit more aggressively.

Speaker 3

Yes. Hi, and thanks for the question. So yes, we are looking for more data and quarter over quarter data. At this point, like I mentioned earlier, what we've been working on is testing various strategies and seeing which strategies yield The most optimal results for us to see. But ideally, yes, we're tracking everything on a monthly and even quarterly data.

Speaker 3

But Given the newness of its product and service, it will take some time till we acquire meaningful data.

Speaker 5

Okay, great. And then one on the balance sheet. Just trying to get a sense as to, given the fact that there was a little bit of pay down over the last quarter on the merchants payable, Just trying to get a sense as to whether those are a little bit more longer term in terms of coming due Or if you think that we're looking at maybe a 2024 more significant reduction in whatever payables will come due? Thanks.

Speaker 2

Good observation, Steve. Merchant payables were indeed down less than what we had expected. The reason for that is that new voucher sales and purchases in Q3 were higher than we expected. So that led to new merchant payables, while the merchant payables from previously sold vouchers indeed higher revenues in Q3 because revenues came in better than what we had forecast. So that was quite good.

Speaker 2

And as a reminder, most of the vouchers that are now purchased are nonrefundable. Members can refund them in the 1st 2 weeks, but after 2 weeks they become non refundable. So the merchant payables today a little bit different than what they were a year ago. But we expect over the next few quarters, merchant payables to decrease further. And as I said earlier, we also expect cash to increase over the next few quarters.

Speaker 2

So that gap between the two should become 0 or actually become positive, meaning more cash than merchant payables. That's what we really expect in the next couple of quarters to happen.

Speaker 5

Great. That's very helpful and congratulations again.

Operator

The next question is from Jim Goss with Barrington Research. Your line is open.

Speaker 6

Good morning. This is Pat on for Jim. I just had a question with regards to the size of the member base. As you mentioned, the potential Increase in interest in finding in deals just because of price pressure. I'm just wondering if that if you guys how you guys see The benefits of marketing activity to try to drive membership growth and sort of what, I guess, challenges you might be facing in terms of attracting members?

Speaker 2

It is indeed both. On one hand, Pat, we are seeing more members coming to us because They are upset or not happy with the prices they are seeing for hotels and the airlines. And at the same time, we also increased our member acquisition during the Q3. We were able to do that, while still maintaining overall costs and expenses flat versus the previous quarter. So that was quite good, but we did invest more in member acquisitions.

Speaker 2

And as a result, you see that member growth quarter over quarter and year over year, was actually quite good this quarter, better than in previous periods.

Speaker 6

Okay. And then with, I guess, demand still relatively high, but maybe slackening, To what extent do you guys feel that you guys that you have the capacity within your existing sales force to continue to kind of evaluate to negotiate deals and kind of continue to or do you feel any need just to increase staffing to kind of make sure that you're still presenting high quality offers to your numbers.

Speaker 2

Yes. As I said over the last 2 years, Strong travel demand and hotels and flights that are full are not very good for us. But now things are slowing down, potentially economy is slowing down. That is good because now more of the travel suppliers come to us and work with us. To report offers to our members and get more guests into their hotel rooms or on their cruise ships.

Speaker 2

And that doesn't mean we need more people, Pat, to negotiate these offers and research them. It just makes it easier. There's more competition among them. It's easier to negotiate a better offer. That translates then in better deals for our members and of more interest than on the side of our members to take advantage of these offers.

Speaker 2

So the expense, as we said over the last couple of years. The expense we have for the team for selling, negotiating, producing, publishing and so forth is relatively flat, whether we have more or less members. So as the member base increases and revenues increase, That doesn't affect the expense side, but it makes it possible for us to increase margins Or to invest more in member acquisition to increase the member base further.

Speaker 6

Okay. And then I guess the last question I had, kind of similar To Mike's question, I was just wondering what sort of share of revenue do like travel deals from to the Middle East generally contribute to quarterly revenue. And I realize it wouldn't be like complete absence of that revenue if it went away because there would be some offset. But I'm just wondering what sort of impact kind of the geopolitical tensions kind of could potentially have.

Speaker 2

It is actually quite slim because offers to the Middle East they don't represent a very large portion of the deals or the offers we make to our members. But apart from countries like Israel, of course, people may be more hesitant to travel to Egypt. I would say that We maybe see a very, very small impact in Europe, but in North America, the impact is close to 0. Also keep in mind what I said earlier, 80 over 80% of Our members are completely open to destinations. So if they cannot go to a certain destination, then they just look to go somewhere else.

Speaker 2

And that's the beauty about Travelzoo that we are able to show our members and motivate them to go to destinations that they didn't think of. So if they can travel to the Middle East, they will find some other place where they can go to and maybe some place they haven't thought about. And that's how it sort of compensates itself. And so in a nutshell, it really doesn't affect us yet in any meaningful way.

Speaker 6

Okay. Thank you.

Operator

Okay. I'll turn it back now over to Mr. Holger Bartel.

Speaker 2

Great. Thank you. And dear investors, again, thanks for your time and support. And we look forward to speaking with you again next quarter. Have a great day.

Operator

On the call. Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect your lines. Have a nice day.

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Key Takeaways

  • Travelzoo reported Q3 2023 revenue of $20.6 million, up 30% year-over-year, with operating profit soaring 1,039% to $3.1 million and a 15% operating margin versus 2% last year.
  • North America revenue grew by $2.9 million to $13.4 million with operating profit rising to $3.0 million, while Europe saw revenue up $1.5 million to $6.0 million and margins expand.
  • Cash, cash equivalents and restricted cash stood at $16.6 million after repurchasing 1 million shares, and management expects cash balances to increase and merchant payables to decline over the coming quarters.
  • Management forecasts continued year-over-year revenue growth in Q4 2023 with relatively fixed operating costs, aiming to further boost margins and leverage exclusive travel deals for Travelzoo's 31.2 million members.
  • Check Flight Club subscription momentum improved in Q3 with higher subscriber and revenue growth, although the service remains only partially rolled out in North America.
AI Generated. May Contain Errors.
Earnings Conference Call
Travelzoo Q3 2023
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