Travelzoo Q4 2024 Earnings Call Transcript

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February 25, 2025

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Travelzoo Fourth Quarter twenty twenty four Earnings Call. Today's conference is being recorded. Currently, all callers have been placed in a listen only mode. And following management's prepared remarks, the call will be opened for your questions.

Operator

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 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 the 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 note that the company issued earlier today.

Operator

An recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir. Now, it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel, its Chair, General Counsel and CEO of JAKS Flight Club, Christina Csalka and its Financial Controller, North America, Jeff Hoffman. Jeff will start with an overview.

Speaker 1

Great. Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for LaJeanne Cheif, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation travelzu.com/ir.

Speaker 1

Let's begin with Slide four. Travelzoo's consolidated Q4 revenue was $20,700,000 down 2% from the prior year. In constant currencies, revenue was $20,600,000 Operating income, which we as management call operating profit increased 8% year over year. Q4 operating profit was $4,900,000 or 24% of revenue, up from $4,500,000 in the prior year. While operating income increased and outstanding shares decreased, EPS was slightly lower compared to last year and we'd like to explain why.

Speaker 1

A year ago, extraordinary income from discontinued operations and relatively high other income from favorable FX trends added $0.05 to quarterly EPS. This year, a strong dollar at the end of twenty twenty four led to negative other income and impacted EPS negatively. Without these effects, the EPS would in management's opinion better reflect the positive earnings trend. Slide six shows a revenue increase in both our North America and JAKKS Flight Club segments, while revenues in Europe were lower. This was caused primarily by fluctuations in Germany, which we do not view as a trend.

Speaker 1

Operating profit increased in both our North America and JAKKS Flight Club segments, but decreased in our Europe segment. On Slide seven, we break down our categories of revenue, advertising, membership fees and other. Advertising revenue was $19,100,000 for Q4 twenty twenty four. Revenue from membership fees increased to $1,600,000 We expect this revenue to grow substantially in 2025. '20 '20 '4 will introduce a membership fee for Travelzoo.

Speaker 1

Legacy members who joined before 2024 were exempt from the fee during 2024. Legacy members represent more than 95% of Travelzoo's reach. In 2025, legacy members continue to receive certain travel offers, but club offers and new benefits are only available to club members. We generally see legacy members being excited to become club members. Slide eight shows an example of membership fee revenue recognition.

Speaker 1

Revenue from membership fees is recognized ratably over the period of subscription. Member acquisition costs on the other hand are recognized in full at the time of the expense. On Slide nine, you can see that our GAAP operating margin was 23% in Q4 twenty twenty four. Slide 10 shows that in North America, the GAAP operating margin increased to 33% for Q4 twenty twenty four. On Slide 11, we provide information on non GAAP operating profit as we believe better explains how Travelzoo's management evaluates financial performance.

Speaker 1

Q4 twenty twenty four non GAAP operating profit was $5,400,000 dollars That's 26% of revenue compared to non GAAP operating profit of $5,200,000 in the prior year period. Slide 12 provides information about the items that are excluded in the calculation of non GAAP operating Please turn to Slide 13. Our solid cash position grew even after repurchasing 135,792 shares of the company's outstanding common stock. As of 12/31/2024, consolidated cash, cash equivalents and restricted cash was $17,700,000 Slide 14 shows 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.

Speaker 1

We believe we can keep fixed costs relatively low in the foreseeable future. Higher revenues would thus increase operating margin. Now looking ahead, in Q1 twenty twenty five, we expect revenue to increase at a higher pace. The pro rata portion of membership fee revenue will already add 5% incremental growth this quarter. This percentage is expected to increase over subsequent quarters as membership fee revenue is recognized ratably over the subscription period.

Speaker 1

We acquire new members and more legacy members become club members. For the whole year, we expect substantially higher revenue growth. Over time, we expect profitability to further increase as recurring membership fee revenue will be recognized. I'll now turn the discussion over to Holger.

Speaker 2

Thank you, Jeff. We will continue to leverage Travelzoo's global reach, our trusted brand and strong relationships with shop travel suppliers to negotiate more club offers for club members. Travelzoo members are affluent, active and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travelzoo is the must have membership for those who love to travel as much as we do.

Speaker 2

Slide 15 provides more information about Travelzoo members. 91% say that they are open to new destinations and travel ideas. We are the club of travel enthusiasts. Slide 17 provides an overview of management's focus. We are working to grow the number of paying members as we continue to convert legacy members and add new club members, add new benefits to make paid mark 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 JetSlideClub's profitable subscription revenue and develop Travel2Meta with Disciplate.

Speaker 2

Now Christina will provide a quick update on Travel2Meta and CheckSlideClub.

Operator

Thank you, Holger. We continue to work on the production of the first metaverse travel experiences. They will be browser enabled. As stated in previous earning calls, we are conscious of developing Travelzoometa in a financially disciplined way. We will provide additional updates in due time.

Operator

Jack's Flight Club in 2024 expanded the team and increased marketing spend. We increased premium members. We also grew revenue 19% year over year. We continue to generate operating profit. We are well positioned for 2025 to continue this growth trajectory with a focus on further penetration of both the Canadian and U.

Operator

S. Market. I'm now handing over to the operator for questions for Jeff, Holger and And we'll take our first question from Michael Kupinski with Noble Capital Markets. Please go ahead.

Speaker 3

Thank you. My question is really related around the subscriptions. I was wondering if you can give us some color on the added value that you're offering for the subscriptions, the pricing and maybe on the experience so far that you've had with your subscription, any other additional color that you can give us about how your advertisers are viewing the subscription offerings and how that is being balanced, I guess, with your legacy advertising partners?

Speaker 2

Hi, Michael. Yes, that's a bunch of questions. Let me start off. The membership is a twelve month membership. In The U.

Speaker 2

S, it's $40 in the other markets, it's around the same in local currency. And what you receive for that is really all the travel to offers. And in particular, we have started producing club offers, which are offers that only those who pay for the membership have access to. We just came off the last couple of days, our first member day. Member day is an event four times a year, where we have special offers, exclusive offers for our club members, and those were really quite amazing, I would say.

Speaker 2

We had, for example, London hotels for $99 unheard of it's a four star hotel, centrally located very, very well with Uta TripAdvisor. We have a Europe trip with flights for £2.99 We had a countryside escape in The UK for £99 with dinner and hotel and breakfast. I mean, quite unbelievable. That's what I'm just giving these examples because that's what's attracting both new members as well legacy members to convert. How is it going so far?

Speaker 2

Well, it's all going according to our plans and it's in line with expectations. We don't release a specific number, but we had a good number of legacy members who already converted to paying members before the end of last year. And as we are introducing these club offers and additional member benefits, which are exclusive to the members, this motivates legacy member conversion over the current quarter and over the future. We also see better results in new member acquisition. We have finally built a robust model that allows us to acquire new members at a cost that works for us.

Speaker 2

So now we have started scaling. In Q1, for example, we're already on pace to acquire more new members for marketing than we did entire last year. So we are seeing more growth. And then lastly, I think you asked about the advertising business. Our advertisers continue to reach the travel the travelers that they used to reach in the past.

Speaker 2

So certainly, there's a lot of questions about what's going on, but they are offers reach the same people and actually even more people than in the past. And one thing we're also learning is those that have switched to the paid membership model are much more active and much more almost glued to receiving our emails and top 20. It's a little bit like for sure when you pay for something, you want to take advantage. So the responses both in terms of activity, click level, purchases that we are seeing from those who have become paid members of Travelzoo are quite impressive compared to what we saw before.

Speaker 3

Just a follow-up. You indicated that there will be an incremental $8,300,000 I think or 5% of revenue growth from subscription in the first quarter. Can you talk about the current trends that you're seeing for travel and update us on differences between North America and Europe outside of the subscription?

Speaker 2

I would say The U. S. People I mean, in The U. S, the economy is doing quite well. There is now more uncertainty from a political perspective and particularly to what it means for consumers.

Speaker 2

But look, the very, very budget conscious travelers are a bit hesitant from what we are seeing, but that's not really our member base. Our member base is more affluent as you saw earlier from the chart. And higher end luxury travel in The U. S. And in Canada are still doing quite well.

Speaker 2

In Europe, I would say we see a little bit more hesitation on consumer side, but that's as I always say, that's good for us because if all hotels in London were full, we certainly wouldn't offer a $99 room night at the centrally located four star hotel for our highly valued travel room members. They wouldn't do that. So I'm happy that this it was almost a craziness of what we saw after COVID. I mean, you called it revenge travel. And all travel companies were so busy.

Speaker 2

That has certainly ebbed and that's good news for us.

Speaker 3

Thank you for taking my questions. Appreciate it.

Operator

Thank you. And we will take our next question from Patrick Scholes with Barrington Research. Please go ahead.

Speaker 4

Hi. I was wondering if you could maybe talk about like the continued engagement levels of like the members that haven't joined club and what I guess sort of has been what tends to encourage them to join? I guess just what share of those numbers kind of joined ahead of year end and maybe just talking about like maybe if you could talk a little bit about who has how many have joined since the start of the year?

Speaker 2

So we don't we don't see much of a change in the behavior of the ones that have not become pay members yet. Click rates are still on click rates per email are still fairly similar to what we saw last year. And we're not specifically releasing information on how many members have converted. We don't want to talk about that. But what I can tell you is that we are currently on pace that at the end of Q1, we will have 50 more paying members than we had at the end of last year, and that focus in one quarter is good for us and makes us happy.

Speaker 2

But maybe, Kristina, you can speak a little bit about what motivates legacy members to become members, paying members because there's more than just the offers, there's a whole range of things that they benefit from. Christine, do you want to speak about that for a minute?

Operator

Sure. Sure. In addition to the offers, which we really believe are the core of the membership and the service, the great service that we've always provided of researching and vetting the offers and identifying these offers, We are also adding other benefits. In Q4, we added lounge access towards delayed flights and saw quite a good response both from legacy members who were interested in that benefit and also from those external to travel to. We've also launched a weekly giveaway where club members have the opportunity to win to be randomly selected to select any top 20 offer that they would like to take for free.

Operator

In addition to that, we've been building out our member services and have priority member services for club members. And we're excited to potentially add additional benefits as the year progresses.

Speaker 4

Okay. And then you had mentioned weakness in Germany. I guess, can you maybe talk about why you feel that was more of a one off and maybe just additional commentary around that around Europe and the ad market there. And then are there like any sort of marketing expenses that you're pulling back on in order to market the paid service?

Speaker 2

Great. So Europe, we were not happy with Europe in Q4 very clearly and we were disappointed particularly with Germany. But the fluctuations were a result of many factors. So just some examples, some destination advertising did not run as planned, some revenue got delayed, cruise advertising was slow, then on top of that on the accounting side, we had the higher true up of annual breakage revenue. We have to do that once a year.

Speaker 2

It's a true up versus estimate that came in higher than what we expected because more people used their vouchers. And then look, the political turmoil in Germany in Q4 where the government resigned, they just had elections last weekend, all of that didn't help either. Many consumers and travel companies just went into a holding pattern. And as you see, just all these things came together all at once. But as we said earlier, we don't see that as a trend that would worry us at this time.

Operator

Okay. Thank you. Thank you. And we will take our next question from Steve Silver with Ardich Research. Please go ahead.

Speaker 5

Thanks, operator, and thanks for taking my question. And congratulations on reaching positive net cash. Looks like this quarter the cash is outpacing the merchant payables for the first time since the pandemic. So congratulations. You guys have been working on that for several years now.

Speaker 5

The question is with the expectation of significant ramping in revenues expected over the course of 2025, whether this might have any read through to your ability to ramp growth investments like Meta, while still maintaining discipline. I know you guys have been active in repurchasing shares. Just curious as to whether the ramp in revenues will allow you to increase growth investments as well.

Speaker 2

Well, first, thanks for pointing out the positive development in our balance sheet, Steve. And now, actually, Pat also asked about marketing, whether we are planning to spend more. And yes, we are. We are in 2025. We will wrap up marketing spend.

Speaker 2

We are already doing that in Q1. Why? Number one, we have found a model that works, okay? So if we can acquire paying members at a reasonable cost and we benefit from them over long periods of time, the renewal rates are renewal rates so far that we are seeing, we are happy with them. And of course, we invest because it's a smart decision for the business to do that.

Speaker 2

And second, as revenues increase and as we were trying to explain earlier, that 5% incremental revenue growth we are seeing in Q1, that number will continue to go up throughout the year because the subscription revenues are only recognized over the course of the twelve months. So it's a little bit difficult to really conceptualize that, but that's why we are already happy with what we are seeing in Q1. Will that affect investments in Meta, in Czech Flight Club? No, we look at these quite independently. And as we also pointed out, Steve, we are developing Meta with quite some discipline.

Speaker 2

We're not still spending millions and millions or billions of dollars on developing that metaverse experience. We do it rationally and we don't see that this is effective particularly as our balance sheet is improving and we are generating more cash flow this quarter or cash flow in Q4, as you saw, was among the highest we have seen in quite some time.

Speaker 5

Great. Thanks for all the additional color.

Operator

Thank you. And we will take our next question from Ed Woo with the Needham School. Please go ahead.

Speaker 6

Yes. Congratulations on the quarter. I have a question on the Jack Flight Club membership and the Travelzoo Club membership. Are they separate products under are there any plans to combine them so that you have one membership for both products?

Operator

I can take that that question. Question. For now, we are operating the businesses independently and that includes the membership. We since we've acquired Jags Play Club, we look for ways to find synergies between the two businesses and that includes some cross promotion and of both the membership and of content identified by either TravelView or JEGS Lake Club. And we're doing that in a way that makes sense and is beneficial for both brands, and they they serve a slightly different market.

Operator

So for now, that's the plan is to keep them independent.

Speaker 6

Great. Well, thanks for answering my questions. Thank you.

Operator

Okay. This concludes the Q and A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

Speaker 2

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

Operator

This concludes today's Travelzoo fourth quarter twenty twenty four earnings call and webcast. You may disconnect your lines at this time and have a wonderful day.

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