Q3 2019 Earnings Call

Slides that are not statements of historical facts.

Constitute forward looking statements and there are made pursuant to safe Harbor provisions.

So important information, including the company's earnings press release issued earlier this morning.

An archive recording of this conference call will be made available on the Travelzoo Investor Relations website at traveled through Dot com less IR.

Now, it's my pleasure to turn the floor over to Travelzoos Global Chief Executive Officer, Holger, Bartel, and as Chief Accounting Officer, Lisa Su.

Lisa will start with an overview of the third quarter 2019 financial results.

Thank you Michelle.

And welcome to those of you joining us today.

Please open the management presentation to follow along with our prepared remark.

Her presentation in PDF format is available on our Investor Relations website.

Slide number three provides the financial highlights for the quarter.

All key metric financial metrics continue to improve as revenues grew and we operated more efficiently.

Travel thieves revenue for the quarter with 25.5 million.

$204000.

Year over year in nominal terms.

And up 2.4% in constant currencies.

Our diluted earnings per share for the quarter were three cents.

Our global number of members was 30.3 million.

500000, you're over here.

And our social media followers and mobile App downloads continued to grow.

Slide four details our revenue by business segment.

Revenue in North America was 15.3 million.

A year over year increase of 3%.

Revenue in Europe , with 8.5 million a year over year increase of 1% in nominal terms and an increase of 6% year over year local currency.

Revenue in Asia Pacific decreased year over year from 2 million to 1.7 million, which is 17% less in nominal terms and 16% less than local currency.

On slide five we would like to highlight the positive performance in our core businesses in North America in Europe .

Very good performance of our core business is masked by our development business in Asia Pacific.

In our core business revenues operating income and S. our growing.

And operating margins in those businesses are running at an annual rate of 18%.

Earnings per share from North America in Europe for the trailing 12 month, we're at $1.12 stuff.

On a consolidated level operating losses from Asia Pacific result, in much smaller profits and margins.

Please also keep in mind operating losses from Asia Pacific are currently not use to offset <unk> taxable income in North America and Europe .

This results in a high effective tax rate on corporate earnings, which would decrease as losses in Asia Pacific shrink.

Slide six shows something we believe is very important for future success.

Increasing revenues and higher margins allow us to grow EPA.

Even while investing more in brand marketing and member growth.

As a reminder, we operate a business is mostly fixed costs, so higher revenues, resulting in a proportionally much larger increase in es.

The next few slides cover detail of our revenue for each of our three business segments.

Slide seven shows North America revenues from our travel products.

Increased 6% year over year to 12.9 million.

Our local revenue decreased 10% year over year to 2.4 million.

Turning to slide eight.

Europe revenue increased from 8.4 million to 8.5 million.

In constant currencies revenues would have been 8.9 million.

In constant currencies, our travel products grew 10% year over year as a result of an increase in revenue from our new vacations product.

Our local revenue decreased 19% year over year.

On slide nine you see Asia Pacific revenue was 1.7 million.

Down from 2 million in the prior year period.

We do not see this as a trend.

We expect revenue from China to grow into fourth quarter.

And also in 2020.

Slide 10 provides a breakdown of our operating income.

North America generated profits of 2.5 million and Europe generated profits of 800000.

The combined operating income of 3.3 million was largely offset by Asia Pacifics operating loss of 2.1 million.

Resulting in total segment operating profit of 1.2 million.

Income taxes were 770000.

Operating income increased to 1.2 million, resulting in 306000 of net income.

An increase of 148% year over year.

Slide 11 shows the cost of revenue and operating margin.

In spite of Asia Pacific, our overall operating margin jumped to 5% in our seasonally weakest quarter.

Historically in the third quarter of a year, our revenues are the lowest and earnings the smallest.

And not indicative of the entire year.

Cost of revenue as a percentage of revenue decreased 11.7% year over year.

Our companywide operating margin increased from 2.8% to 4.8% as the result of lower operating expenses.

Slide 12 presents our operating expenses by segment.

Operating expenses decreased in North America.

Operating expenses increased in Europe .

As we invested more in member acquisition, particularly in Spain and France.

Operating expenses in Asia Pacific increased due to the completion of a strategy project with the top consulting firm in China.

All costs, it or project where expenses in Q3.

Slide 13 shows productivity of the organization increase compared to the prior year.

Moving onto slide 14.

Cash generated was used to make repurchases of travel through common stock.

We ended the quarter with a cash balance of 11.6 million.

Slide 15 provides a performance summary, as the management of companies season.

Revenue growth improved in North America in Europe , but we're not yet at our 10% target.

Operating margin in our core North America, and Europe businesses were up 14% and our net income more than double.

Our operating profit increased by 70%.

Our cash generating business enables us to make share repurchases.

Looking forward, we expect the following.

For Q4, we expect revenue growth to be higher than in previous quarters. This year.

We also expect operating profits and margins to increase versus the fourth quarter of 2018.

As we extend our vacation product from Europe into other regions, we expect North America, and particularly the U.S.

To benefit from the expanded offering.

We expect revenue in Asia Pacific to increase.

Especially our revenue from China, where we will focus on.

For next year, we see an overall higher growth rate in revenues than in 2019.

Which will allow us to further improve our operating margin closer to 15% and can you continue to grow S.

Even though we plan to invest more in marketing and member growth.

Now Holger will provide you an <unk>.

An update on our business in Asia Pacific and explain why we believe travels these global brand and service is becoming more relevant for consumers and the tourism industry.

Thank you detail in the third quarter, we move quickly and decisively in Asia Pacific.

Never ever or where we still focused on it they are compelling reasons first after a rigorous review off the market our business model and travelers who is current position to market.

The third party research and review confirmed and immediate income creates opportunity to grow revenue from China very substantially.

Second we believe there will be a meaningful favorable impact on travelers, who was reported EPS, resulting from performance improvements in the Asia Pacific business segment.

Our new management team, which was installed in the second quarter.

Shifting to third quarter with a top management consulting firm in China to develop to get our strategy for a significant present itself travelers, who in social media and mobile channels execution began in mid September .

China has the biggest social media community in the World.

And has the highest mobile penetration, which makes it also ideal for us.

As a global company to develop capabilities in DC area.

It's the financial performance of our Asia Pacific business would improve.

We should see a meaningful increase in travel Swiss reported EPS.

These are early a highlight it debt to trailing 12 month pro forma U.P.S. from our attractive core businesses in Europe , and North America would be $1.12 cents without the operating losses from Asia Pacific.

Our intention is to reach an even higher EPS in the next two years by further growing the business in Europe , and North America, plus generating profits from a growing business in China.

[noise] terminals was very creative in identifying undiscovered destinations and new ways to enjoy already popular destinations.

What we do best is to generate and to influence demand among our members.

And disadvantage makes our brand more relevant than ever in ticketing the challenges in two days tourism landscape.

The global tourism industry is increasing you talking and becoming worried about overcrowding of destinations.

Overcrowding of destinations means that too many tourists are traveling to the theme destinations at the same time, leading to environmental and social problems.

The problem was first covered in 2017 in a report by Mckinsey <unk> company and the world travel and tourism, calling so.

By 2020 to 20, most popular countries will add more international arrivals tend to restore the world combined.

[noise], how to manage supply and demand strategically is sticky question to answer for any destination for out its development cycle [noise].

Traveling to cure rates deals that allow all members to explore popular place is doing less busy seasons.

Also visiting you will unique local attractions.

In this case travelers, who will help manage demand and supply plenty in certain destinations.

Well as raising public awareness of the importance of sustainable travel.

[noise] travelers, who is known for its created travel ideas and inspiration.

I want to say that we are always one idea ahead in finding the next interesting seem to do or interesting pleased to experience for our members.

By leveraging our creativity in.

By leveraging our creativity in idea to rating we can help set the trend of sustainability in travel among consumers and the industry.

Now back to the operator.

The floor is now for questions. If you do have a question. Please press the star followed by one what are your Touchtone phone.

Once again, if you do have a question ladies and gentlemen that is star followed by one or your Touchtone phone.

Please hold while we poll for questions.

There are no question.

I'll turn the call back now to Mr. Holger Bartel.

Well, ladies and gentlemen, thank you for your time and support and we look forward to speaking with you again next quarter.

Nice day bye.

Thank you ladies and gentlemen. This concludes todays teleconference. You may disconnect. Your lines at this time have a nice day.

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