Travelzoo Q2 2023 Earnings Call Transcript

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July 27, 2023

There are 8 speakers on the call.

Operator

Hello, everyone. Welcome to the Travelzoo Second 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.

Operator

Actual results could vary materially from those contained in one of the forward looking statements. Factors that could cause actual results to differ materially And those in forward looking statements are described in the company's Forms 10 ks 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.

Operator

Now it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel Its Finance Director, Lejune Qi and its General Manager, Travelzoo Mehta, Arvina Aluwali. Lejune We'll start with an overview of the Q2 2023 financial results.

Speaker 1

Thank you, operator, and welcome to those of you joining us The presentation in PDF format is available on our Investor Relations website at trebazoo.com Let's begin with Slide number 3. Our consolidated Q2 revenue was $21,100,000 up 19 percent from $17,700,000 in the previous year. In constant currency, revenue was $21,200,000 which is an increase of 20% year over year. Operating income, which weigh as management call operating profit increased 84% year over year. Q2 operating profit was $3,300,000 or 15% of revenues, up from $1,800,000 in the prior year.

Speaker 1

As of June 30, 2023, we had 30,800,000 unduplicated members compared to $30,700,000 as of June 30, 2022. Slide 4 shows that revenue growth accelerated, particularly in Europe and at JAKKS Flight Club. Year over year growth rates were higher North America segment revenue increased to $1,800,000 from $12,400,000 to 14,100,000 The operating profit in North America was $3,800,000 in Q2 compared to an operating profit of 3,300,000 A year ago, Europe segment revenue increased $1,500,000 from $4,400,000 to 5,900,000 Europe had an operating loss of $239,000 in Q2 compared to an operating loss of 1,500,000 in the prior year. On Slide 6, you can see that our operating margin reached 15% in Q2, up from 10% in the same period last year. The operating margin of 15% in Q2 2023 It's much higher than before the pandemic.

Speaker 1

Before the pandemic, Trebilzus reported operating margin was much lower because of losses from our Asia Pacific Business segment. In March 2020, Treblezoo decided to make Asia Pacific a licensing business going forward. Now the operating margin shows The true profitability of Trebledu in North America and Europe. Slide 7 shows that in North America, The operating margin reached 27% for Q2. On Slide 8, we provided information on non GAAP operating profit As we believe it better explains how Travelzoo evaluates performance.

Speaker 1

Q2 2023 non GAAP operating profit was Slide 9 provides more information about the items that are included in the calculation of non GAAP operating profit. Please turn to Slide 10. As of June 30, 2023, consolidated cash, cash equivalents and restricted cash was $20,200,000 Our cash balance remained unchanged. Merchant payables decreased by 4,000,000 Slide 1112 detail our revenues by business segment.

Speaker 2

I can continue. Slides 11 and 12 detail our revenue by business segment. The North America business segment saw a year over year revenue increase of $1,800,000 Turning to Slide 12, The Europe business segment saw a year over year revenue increase of 1,600,000 Slide 13 shows how revenue is compared to operating expenses. 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.

Speaker 2

For Q3 2023, we currently expect growth in revenue and growth in operating income to continue year over year. Let's turn to next slide. Year over year revenue growth Accelerated from the Q1 to this quarter. We will continue to leverage Travelzoo's global reach, Trusted brand and our strong relationships with top travel suppliers to negotiate more exclusive offers for Travelzoo members. With more than 30,000,000 members, 8,000,000 mobile app users and 4,000,000 social media followers, Travelzoo is loved by travel enthusiasts who are affluent, active and open to new experiences.

Speaker 2

Slide 14 provides more information about Travelzoo members. 87% say they are open to new destinations TravelZoo members are indeed true travel enthusiasts. Slide 16 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, utilize higher operating margins to and develop travel through meta with discipline. At this point, I'd like to turn over to Arvina.

Speaker 3

Hello, everyone. Please turn to Slide 19 for an update on the new Travelzoo meta service. We opened for founding membership in Q2 2023. The website is meta. Travelzoo.com.

Speaker 3

We are accepting 1,000,000 founding members. Founding members are the early adopters of Travel2Meta who will play a pivotal role in shaping the future of travel in the metaverse. Founding membership is a one time fee of $20 Each founding member will be entitled to 1 of the world's 1st personality based emotionally driven travel companions, NFTs from an interactive gallery. No two travel companions are the same. Only founding members will also receive An exclusive 1st year annual subscription rate and sneak peek on the 1st upcoming beta metaverse travel experiences.

Speaker 3

Please turn to Slide 20 through 23 to see a snapshot of the founding members' only interactive gallery. On Slide 24, you can get a glimpse of the travel companions. I'm handing over to the operator for questions for Holger, Lijun and me.

Operator

Thank you. The floor is now open for questions. And we'll take our first question from Jim Goss with Barrington Research. Your line is now open.

Speaker 4

Great. I appreciate the opportunity. One thing I'm very focused on is the cost structure Yes, I think that was a key advantage, an opportunity you had coming out of COVID to maybe right size the cost structure. And I wanted to ask if you think it's where it needs to be right now or do you think it will be able to rise increase in certain areas And how things match up between U. S.

Speaker 4

And Europe?

Speaker 2

Hi, Jim. As we said earlier, we believe that our fixed costs are relatively stable And they will remain stable for the next few quarters. We believe so. We have Some opportunity to decide how much we would like to spend on marketing this quarter. We had great opportunities in The U.

Speaker 2

K. And for Jack's Flight Club to spend a little bit more on member acquisition. And that's why costs are a little bit up versus the previous quarter, but in general, we believe they will remain at the current level for the foreseeable future.

Speaker 4

Okay. A couple of other things. One is, I was wondering What you might think of in terms of margin profile overall or U. S. Versus Europe, Given that you have been able to take advantage of leveraging the fixed cost structure and where you think you might be able to RISE 2 at whatever you think of as a maturity level and maybe even how long it might take to get there.

Speaker 2

We believe that for the company overall operating margins can go higher. You see that The operating margin in North America has been around 30%. Europe is Far behind that, but as Europe is catching up, the operating margins in Europe, we expect them to increase as well. And we believe that we can for the company as a whole, we can reach Overall similar levels of what we are seeing in North America.

Speaker 4

Okay. And maybe One last grouping. Jack's Flight Club seemed like it was a great opportunity. The ROI Hasn't been so great to this point. I'm wondering what your objectives might be with Jack's Flight Club.

Speaker 4

And if you feel there are any subscription opportunities you've been able to enjoy with Jack's

Speaker 2

Yes. We're happy with Jack's Life Club right now. We finally after Coming out of the pandemic, we finally see members increasing, in fact paying subscribers were up 30%. You don't see that yet in the revenues because revenue gets recorded delayed. And so we're quite optimistic about Jack's Light Club and the contributions it can make to the company overall.

Speaker 4

And in terms of using a subscription model in the core business, is that So not the best idea?

Speaker 2

Yes. It's something we are looking at for sure. We are doing some tests and At the appropriate time, we will update you and investors about what we are planning to do.

Speaker 5

All right.

Speaker 4

Thanks very much. I'll give up the floor. Appreciate it.

Speaker 2

Sure. Thanks, Jim. Thanks, bye.

Operator

Thank you. Next, we'll go to Ed Woo with Ascendiant Capital. Your line is now open.

Speaker 5

Yes. Thank you very much for taking my question. There's been a lot of buzz even in the travel industry about AI and machine learning. Are Travelzoo doing anything in that area?

Speaker 2

Hi, Ed. It's actually something that we have been looking at for quite a while before it even became such And yes, we indeed have an initiative underway to leverage AI in a couple of areas of our business.

Speaker 5

Great. Is there anything you could talk about or is it something that you're going to wait until the Time is the right to discuss?

Speaker 2

It's the second we would like to wait until it's time to discuss. Also, We don't really would like we don't really want to inform our competitors and others what we are planning to do.

Speaker 5

Great. Well, it's glad to hear that you guys are also involved in this. And then my next question is on Meta. You said that the launch has happened in the Q2 and you got a 1,000,000 members with congratulations. Is that on track with what you guys are expecting?

Speaker 5

And do you guys have formal expectations for what number you'll be maybe by the end of this year?

Speaker 3

Thanks, Holger. Hi, Ed. So yes, as I've been mentioning in the previous calls, we are building Travelzumeta in phases within a very disciplined manner. So we did launch our founding membership phase, which you can see on meta.travel2.com in Q2. And while we cannot disclose any data as yet, because as we can imagine, we are trying to be the 1st mover, so the data is confidential.

Speaker 3

We are highly encouraged by the early results and I do look forward to sharing that with you in due time.

Speaker 5

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

Operator

Next, we'll go to Steve Silver with Argus Research. Your line is now open.

Speaker 6

Thanks, operator, and thanks for taking the question. First, I want to congratulate you guys on the continued progress in the balance sheet. It's nice to see that the Merchants payables continue to come down at a significant rate while the cash is being maintained. I guess my main question is just how You're thinking about the recovery in the business, particularly in Europe, given the fact that you've mentioned on the last few calls that Europe is lagging behind North America in terms of the operating margin that you're getting in each place, but yet the company was able to issue a new share repurchase plan. So just trying to get a little bit more color in terms of what you're seeing Out of Europe in terms that gives you the confidence that the operating margin will continue to recover,

Speaker 2

Yes, great, Steve. We are indeed Very happy with the improvements in the balance sheet. Thanks for noticing that. If you compare our balance sheet to 1 year ago, it has It's improved very much indeed. And we were able to do so because we executed exactly what We've been saying for the last year, which is we want to accelerate revenue growth, we want to increase Operating margins, we want to increase EPS, we want to improve our balance sheet, we want to grow JAKKS FLIGHT CLUB's profitable subscription revenue, And we are seeing all of this happening.

Speaker 2

So we are actually quite happy and we are also very pleased with the 2nd quarter. Revenue growth overall is higher than Q1. It has accelerated Over what we saw last year, so we have very good momentum coming out of the pandemic. When it comes to Europe, One should not look at just the absolute numbers. Yes, the revenue is the same in Q2 as it was in Q1, but the growth rate Year over year is now 35%.

Speaker 2

So finally, Europe is also getting that momentum. And it As we said, with a delay, we expect it will also reach pre pandemic levels When we as we continue on this course. So we are quite pleased with it. And then your What was your third question? It was related to the share repurchase.

Speaker 6

Yes, in terms of how the recovery

Speaker 4

will get there. Yes. Thanks.

Speaker 2

Yes, the recovery is fully on track. The profitability of the company is higher than it has ever been. We are generating lots cash and that gave us an opportunity to repurchase already last quarter a fairly large amount of shares. And We also think we have that opportunity going forward to repurchase more shares. That's why we announced the share repurchase program yesterday.

Speaker 6

Great. Thank you so much for the color. Congratulations again.

Operator

Next we'll go to Patrick McCahon with Noble Capital Markets. Your line is open.

Speaker 7

Hey, this is Pat for Mike Kupinski. My first question is if there is any particular impact from economic weakness as it relates to consumers' travel budgets. There might be the appetite for travel, but are consumers reducing how much they're spending? Have you seen anything on that, any impacts to the business? Yes, I guess, I'll leave it at that for my first question.

Speaker 2

Yes, we are seeing we are indeed seeing a trend that demand Particularly for hotels is weakening. You probably hear that air lines and planes are quite full, but That's also a result of significantly reduced capacity. But what we are hearing from hotels in both North America and Europe And particularly on the higher end is that the bookings they are receiving this year are not as strong as what they had last The start of the year was quite strong. And so they all expected business would be Very, very good again, even better than in the sum of 2022, but that hasn't happened to the level of expectations. This is good for us because more hotels and other travel providers are coming to us and Work with us to create these specific offers that are motivating our 30,000,000 members to take additional trips, go some places where they didn't plan to, and travel more.

Speaker 2

So, Yes, we see this trend of very, very strong travel demand coming out of the pandemic. We see it weakening and as I said, it's actually good for us. I believe in the second half of the year, We will have even better opportunities to create exclusive offers for all members.

Speaker 7

Sure. And kind of piggybacking on that, Are people booking any closer to the dates as far as closer or further away from the travel dates Has that trend has that been trending one direction or another, as that as Demand has weakened.

Speaker 2

Well, we are not an online travel agent. So We are not the booking site. However, we of course hear from our partners what they are seeing. What happened this year is that We were quite strong. That's different from last year, because last year, people were booking more last minute.

Speaker 2

So What we are hearing is that the booking window is going back to what it was before the pandemic. So in general, We see a lot of normalization.

Speaker 7

Got you. Thank you. And then I also just wanted to touch on Meta, Travelzoo Meta quickly is are there any milestones we can look for going forward? Anything we can kind of yes, anything we can look for?

Speaker 3

I can take that. So we At this point, like I just mentioned, we did launch our founding membership phase and we do have milestones we're tracking. But again, it's a little too early to disclose, especially given we're attempting to be the 1st mover. But as and when we approach those milestones, we will update everyone.

Speaker 7

Okay. Thank you. And yes, congrats on the solid quarter.

Speaker 2

So look, Pat, we are very excited to be in this industry. It's It's a great industry to be in because what the pandemic showed to people is that it is Essential that they would like to leave home and they want to travel. So, I think the interest in people to travel It's higher than it ever was before the pandemic. Yet, of course, the inflation and Potential economic weakness is putting stress on people's process and it also creates openings in the travel industry where we come in And we help the travel companies to drive demand into areas where there was less demand and also or at periods when there is less demand over this period. And in this way, we are Creating incredible offers for our members that get them to travel more and really fulfill their desire to get away and learn more about new So we're in a good spot and we're very excited and it's a good place to be in.

Speaker 2

But thank you very much.

Speaker 7

Excellent. Thank you.

Operator

And I'm sure we have no further questions at this time. I'll now turn the call back over to Mr. Holger Bartel for any additional or closing remarks.

Speaker 2

Sure, dear investors. So thank you for your time and support. We look forward to speaking with you again next quarter. Have a great day.

Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time. Have a nice day.

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Travelzoo Q2 2023
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