Travelzoo Q2 2024 Earnings Report

Travelzoo EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.19
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.17

Travelzoo Revenue Results

• Actual Revenue: $21.14 million
• Expected Revenue: $21.58 million
• Beat/Miss: Missed by -$440.00 thousand
• YoY Revenue Growth: N/A

Travelzoo Announcement Details

• Quarter: Q2 2024
• Date: 7/25/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, July 25, 2024
• Conference Call Time: 11:00AM ET

Travelzoo (NASDAQ:TZOO) (NASDAQ: TZOO) is a global internet media company specializing in publishing curated travel, entertainment and local deals to a subscriber base of millions. Through its website, mobile applications and weekly email newsletters, Travelzoo partners with airlines, hotels, cruise lines, tour operators and local merchants to promote time-sensitive offers at discounted rates. The company generates revenue primarily from media commissions, advertising arrangements and marketing services provided to its hotel and resort partners.

Founded in 1998, Travelzoo went public on the NASDAQ in 2003 under the ticker symbol TZOO. Over the years it has evolved from a small startup into an established online publisher, leveraging proprietary deal-aggregation technology to identify value-priced offerings. Travelzoo’s flagship Top 20 list highlights the week’s most compelling travel opportunities, while specialized newsletters and mobile alerts ensure subscribers receive relevant deals for their preferred destinations and interests.

Headquartered in New York City, Travelzoo maintains regional offices across North America, Europe and Asia to support partnerships and negotiate exclusive offers. The company’s digital platform is built around audience segmentation and data analytics, enabling targeted promotions that drive higher conversion rates for its partners. Travelzoo continues to expand its geographic reach by forging relationships with tourism boards, activity providers and online travel agencies in key markets worldwide.

Under the leadership of President and CEO Chris Loughlin, Travelzoo focuses on enhancing its user experience through mobile innovation and personalized deal delivery. The management team emphasizes operational efficiency, strategic alliances and technological enhancements to sustain growth in an increasingly competitive online travel sector. With a track record of connecting consumers to verified, quality offers, Travelzoo remains a prominent player in digital deal publishing.

Travelzoo Q2 2024 Earnings Call Transcript

Key Takeaways

• Travelzoo reported Q2 revenue of $21.1 M, consistent year-over-year, with operating profit up 23% to $4.0 M and GAAP margin rising to 19% from 15% last year.
• Revenue from membership fees reached $1.2 M in Q2, and with legacy members set to start paying in 2025, each 100,000 conversions at $40/year could add $4 M in annual revenue.
• The company ended Q2 with a $13.2 M cash position after repurchasing $0.8 M of stock, underscoring a solid balance sheet and financial flexibility.
• For Q3 2024, management expects year-over-year revenue and profit growth at a slower pace than 2023 but with higher profitability, while 2025 revenue is forecast to grow substantially due to membership fees.
• Key strategic priorities include converting legacy members to paid subscriptions, adding new benefits, sustaining the Top 20 advertising business, and developing Travelzoo Meta metaverse experiences with disciplined investment.

Presentation

[Operator]

Hello, everyone. Welcome to the Travelzoo second quarter 2024 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 the 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 statement. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Form 10-K and Form 10-Q and other SEC filings.

[Operator]

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 archive recording of this conference call will be made available on the company's investor relations website at travelzoo.com/ir. It is now my pleasure to turn the floor over to Travelzoo Global CEO, Holger Bartel, and its Finance Director, Lijun Cui. Lijun will start with an overview.

[Lijun Cui, Finance Director at Travelzoo]

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 number 4. Travelzoo's consolidated Q2 revenue was $21.1 million, consistent with the prior year. In constant currencies, revenue was $21.2 million, up from $21.1 million year-over-year. Operating income, which we as management call operating profit, increased 23% year-over-year. Q2 operating profit was $4.0 million, or 19% of revenue, up from $3.3 million in the prior year. As of June 30, 2024, we had 30.8 million unduplicated members, consistent with June 30, 2023.

[Lijun Cui, Finance Director at Travelzoo]

Slide 5 shows that revenue remained consistent in our North America segment, and an increase in our Europe segment. Operating profit turned positive in Europe. On Slide 6, we break down our categories of revenues: advertising, membership fees, and other. Advertising revenue was $20.0 million for Q2 2024, consistent year-over-year. Revenue from membership fees increased to $1.2 million. We expected this revenue to grow substantially in 2025 for the following reason. At the beginning of 2024, we introduced a membership fee. Those who were already members at the time are exempt from the fee during 2024, but have to pay in 2025. We call this group legacy members, and they represent over 95% of current members. Slide 7 shows an example of membership fee revenue recognition. Revenue from membership fee is recognized ratably over the period of the subscription.

[Lijun Cui, Finance Director at Travelzoo]

Member acquisition costs, on the other hand, are recognized in full at the time of the expense. On Slide 8, you can see that our GAAP operating margin was 19% in Q2 2024, compared to 15% a year ago. Slide 9 shows that in North America, the GAAP operating margin remained high at 26% for Q2 2024. On Slide 10, we provide information on non-GAAP operating profit, as we believe it better explains how Travelzoo's management evaluates financial performance. Q2 2024 non-GAAP operating profit was $4.8 million. That's 23% of revenue, compared to non-GAAP operating profit of $4.0 million in the prior year period. Slide 11 provide information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to Slide 12.

[Lijun Cui, Finance Director at Travelzoo]

We maintained a solid cash position even after repurchasing 800,000 of the company's outstanding common stock. As of June 30, 2024, consolidated cash, cash equivalents, and restricted cash was $13.2 million. Slide 13 show how revenues compare to operating expenses. Most of the company's operating expenses, except for marketing, are relatively fixed in the short to mid-term. We believe we can keep fixed costs relatively low in the foreseeable future. Higher revenues will just increase operating margins. For Q3 2024, we expect a growth in revenue year-over-year, albeit at a slower pace than in 2023. However, there could be unexpected fluctuations. We also expect for Q3 2024, higher profitability year-over-year.

[Lijun Cui, Finance Director at Travelzoo]

...For 2025, we expect a substantial growth in revenue as a result of additional revenue from membership fees. Now I turn the discussion over to Holger.

[Holger Bartel, CEO at Travelzoo]

Thank you, Lijun. We will continue to leverage Travelzoo's global reach, trusted brand, and strong relationships with top travel suppliers to negotiate more exclusive offers for our members. With more than 30 million members, eight million mobile app users, and four million social media followers, Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. Slide 15 provides more information about Travelzoo members. 91% say they are open to new destinations and travel ideas. We are the club of travel enthusiasts. Turning to our seventeenth-- turning to Slide 17, it provides an overview of management's focus.

[Holger Bartel, CEO at Travelzoo]

We are working to convert a large number of legacy members into paying members as of January 1st, 2025, add new benefits to make paid membership even more valuable, retain and grow our profitable advertising business from the popular Top 20 product, utilize higher operating margins to increase EPS, grow Jack's Flight Club's profitable subscription revenue, and develop Travelzoo META with discipline. Now I'd like to speak about Travelzoo META. We are working on the production of the first metaverse travel experiences. They will be browser-enabled, and as stated in previous earnings calls, we are conscious of developing Travelzoo META in a financially disciplined way. We will provide additional updates in due time. I'm now handing over to the operator for questions for Holger, Lijun, and me.

[Operator]

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star one. We ask that you limit yourself to one question. Your first question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead.

[Michael Kupinski, Analyst at Noble Capital Markets]

Thank you, and thank you for taking the questions. I appreciate it. Just a quick question here, regarding your conversion to subscription. Can you just kind of give us some metrics? I know you're talking about substantial growth in 2025, and I was wondering if you can give us some metrics around what your expectations might be, given that you've been testing different, you know, different marketing events and things like that to gain subscription. And was wondering if you can give us some metrics around your thoughts of 2025, and then how you anticipate the conversion to subscription will affect your advertising and then margins as well.

[Holger Bartel, CEO at Travelzoo]

Hi, Michael. So on the first question, we are not making any estimates for how many members will convert in 2025. The reason why we are speaking about substantial revenue growth is you can calculate it yourself. For every 100,000 members that convert at a membership fee, which is annually $40, that reflects an incremental $4 million in annual revenue. So that's just 100,000 of the 30 million converting. Now, as I mentioned at the end when I spoke about management's focus, we have a plan for making this transition in a way that it will not affect our advertising business. We are looking to maintain advertising in our popular Top 20. We will share that plan later in fall.

[Operator]

Your next question comes from the line of James Goss with Barrington Research. Please go ahead.

[James Goss, Analyst at Barrington Research]

Thanks. Just to clarify, Holger, so the Top 20 is not part of the paid for program, and that, can I assume that is the source of a lot of the ad dollars?

[Holger Bartel, CEO at Travelzoo]

Hi, Jim. Top 20 is the product with which Travelzoo generates indeed the most advertising revenue, and we have over 30 million subscribers to the Top 20. As I mentioned earlier, yes, Top 20 is of course part of your membership, but we are also looking to retain the advertising business in the Top 20.

[Operator]

Your next question comes from the line of Steve Silver with Argus Research. Please go ahead.

[Steve Silver, Analyst at Argus Research]

Thank you. Good morning, and thanks for taking the question, and congratulations on the earnings leverage, both in operating margin expansion as well as the reduction in the number of shares outstanding. I guess my question is, given the current cash balance, with even after the repurchases is still within one quarter of being net positive when you factor in the merchant payables. I'm just curious as to whether there's any updated thinking in terms of the use of cash or the needed use of cash, for investments in new growth initiatives, given the fact that really marketing is the only non-fixed component of expenses over the near term. Thanks.

[Holger Bartel, CEO at Travelzoo]

Hi, Steve. When it comes to cash, we always very carefully think about where we best use it. Do we invest it in marketing? Do we invest it in product? Do we invest it in acquisitions? Do we invest it in share repurchases? So it's a very deliberate decision we make. We have quite a few opportunities. Related to our expectation for 2025, when legacy members start having to pay a membership fee, we also expect, as I, as I calculated earlier, we also expect that that will quite substantially improve our balance sheet and also increase our cash position.

[Operator]

Your next question comes from the line of Ed Woo with Ascendiant Capital Markets. Please go ahead.

[Ed Woo, Analyst at Ascendiant Capital Markets]

Yeah. Thank you. Can you talk about how the summer travel season is progressing, and what is your outlook for into the rest of the year in terms of how the travel season industry outlook is? Thank you.

[Holger Bartel, CEO at Travelzoo]

Hi, Ed. In general, we are seeing in travel, and we're hearing from our partners, a similar story that lots of other companies are hearing. Consumers are becoming more value conscious. They don't want cheap, they don't want overpriced. They want to pay a fair price for what is providing excellent value. That's exactly what Travelzoo does, and there's no difference between the U.S. and Canada, U.K., Germany, and the rest of Europe. We really see the same trend in all the markets. In the last couple of years, the travel industry has used the opportunity of the pent-up demand to increase prices quite tremendously for airline tickets, hotel rooms.

[Holger Bartel, CEO at Travelzoo]

From what we are hearing, that is coming to an end this year, or at least there's expectations that it could come to an end this year because consumers are looking for more value, and that's exactly what Travelzoo is doing. And with our move to a paid membership, we are creating a closed user group, and within that closed user group, this is something that's important for travel suppliers because they would like to offer special deals, discounts, prices, not publicly, but to a limited group of people. And that's why we are hearing the model of moving to a closed user group is quite attractive for travel suppliers.

[Operator]

Your next question comes from the line of James Goss with Barrington Research. Please go ahead.

[James Goss, Analyst at Barrington Research]

Hi. One more thing. I was wondering about the new initiatives or the new benefits to the paid membership you referred to. Could you give an example or two of what sort of things you have in mind that might appeal to new members?

[Holger Bartel, CEO at Travelzoo]

Hi, Jim, again. You will hear about them over the next few months. It's not something that we would like to disclose previously here before we actually share it with our members. But we have quite a few things in the works that I think our members will truly love and enjoy for the rest of this year, and then in 2025 and beyond.

[Operator]

That concludes our question and answer session. I will now turn the call back over to Holger Bartel for closing remarks.

[Holger Bartel, CEO at Travelzoo]

Thank you, ladies and gentlemen. This concludes our teleconference today. You may disconnect your lines at any time, and we look forward to speaking with you again next quarter. Thank you for your time and support.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Participants

Executives

• Holger Bartel, CEO
• Lijun Cui, Finance Director

Analysts

• Ed Woo, Analyst at Ascendiant Capital Markets
• James Goss, Analyst at Barrington Research
• Michael Kupinski, Analyst at Noble Capital Markets
• Steve Silver, Analyst at Argus Research