Q3 2020 Travelzoo Earnings Call

October 21, 2020

[music].

Hello, everyone welcome to the Travelzoo third quarter 2020 financial results Conference call. All participants have been placed in a listen only mode and the floor will be open for your 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 995 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 form 10-K, and 10-Q and other periodic filings with the SEC 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 Companys earnings press release issued earlier this morning and archive recording of this conference call will be made available on the Travelzoo Investor Relations website at Travelzoo Dot Com Slash IR now, it's my pleasure to turn the.

The call over to Travelzoos Global Chief Executive Officer, Holger, Bartel, and its Chief Accounting Officer, Lisa Su, Lisa will start with an overview of the third quarter 2020 financial results.

Thank you operator.

And welcome to those of you joining us today.

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

The presentation in PDF format is available on our Investor Relations website at Travelzoo Dot Com Slash IR.

On the first slide on page number three.

You can see the strong improvement of the business in Q3 compared to Q2.

That said with revenues almost doubling to 13.8 million in Q3 compared to Q2, we.

We have begun the path of recovery.

We were able to curb the losses not only by growing revenue, but also by quickly cutting expenses.

The trenches that revenue and EPS, increasing from Q2 to Q3.

We were also able to reduce our operating loss from Q2 to Q3.

Travel do has decided to provide information on non-GAAP operating income going forward as we believe it better explains how management evaluates performance.

Page four shows the non-GAAP operating income, which decreased year over year by 69%.

However, we were able to turn to Q3 income positive with the result of 1.2 million.

Slide five give the detail on the items that are excluded in the calculation of non-GAAP operation operating income.

On slide six the cash balance of 51.7 million presented.

Almost doubled versus Q2 and year.

And year over year, it grew by more than 61%.

This this is clearly driven by Dr. sales.

Slide seven and eight detail our revenue by business segment.

When neutralizing FX changes in North America business segment recorded a decrease in revenue of 41% year over year.

And the Europe business segment recorded a decrease in revenue of 56% due to the ongoing effects of the pandemic.

While revenues from locals still stagnated in Q3 advertising revenue picked up compared to the previous quarter as advertisers have started coming back to make use of travel due to reach.

The non-GAAP operating expenses presented in slide nine show a year over year reduction of 43%, mostly coming from head count adjustment and sales and marketing.

And process optimization across most areas of the company.

We believe we are well positioned to maintained efficiency in the long run.

Slide 10 shows that our efforts towards increasing efficiency and regaining profitability have paid off.

We currently expect to receive a result close to breakeven or profit in Q4, if we can stay under current path of recovery.

Now please turn to slide number 11.

Olga who will provide an update on our members and the management focus.

Thank you Lisa.

Well. These days, we often emphasized the importance of pivoting and adjusting quickly to a changing environment.

Today I'd like to talk more about our members and emphasize how vital they actually are to travel to success.

With more than 30 million members.

Six and a half million mobile app users.

And 4 million social media followers.

I will do is loved by traveling for was yes.

And the brands following its coincidence high quality by the industry.

Travelzoo members are active.

71% to three or more trips last year.

The I wouldn't mind it.

75% say, they look forward to receiving ideas and deals from traveling through and to be influenced.

Travelzoo members I established.

Many are in the 50 plus each group. This is the fastest growing segment in leisure travel.

And our members have a higher disposable income and spent more on travel including spending at the destination.

Lastly, 67% of Travelzoo members a female.

The last month and travel through success in selling vouchers for the future travel have shown our members really love the brand and trust to travel through.

We believe this is a large and unique asset.

Finally, please turn to page 13.

We left this page unchanged from last last quarter because.

Because managements focus remains to see him for Q4.

Now back to the operator for our Q any session.

The floor is now open for questions. If you have a question. Please press star followed by one on your Touchtone telephone at this time once again, if you have a question ladies and gentlemen, Please press Star then one on your Touchtone telephone.

Well, we'll open our first question comes from the line of Jim Goss from Barrington Research. Your question. Please.

Good morning, and thank you.

I have a couple one.

One thing you always talk about the irresistibly price deals that are coming into the market, so you're able to draw attention to.

But it does seem like as with a number of things if they don't have to be just great deals they have to rely on consumer willingness to travel and I'm. Just wondering how are you.

Match up those.

Addressing issues right now are you seeing a greater willingness of those.

Those of returning to travel and is it.

Curves with the flexibility as noted in the past or some distance and a howler how are you characterizing the shape of that recovery right now holger.

Hi, Jim So when we do service among our members about half of them are prepared to travel right now or in the next few months a lot of that is interest in domestic trips. The other half falls into that category or what I would characterize right now at Dreamforce, They dream about going somewhere next year and.

I believe thats why our voucher model if successful will be course members can look into deals that we are seeing today for travel in the future. If we wouldn't have Pete.

People are ready to travel again, we still anticipate a significant pent up demand of people wanting to go and wanting to go on trips.

So in terms of the timing of that recovery I know you talked about first quarter being potentially a profitable.

You know that has that fairly safe and that the first quarter will be even better.

And just in terms of that shape for that rebound.

So far over the last six months, we have seen a very very steady recovery every month is getting better Q.

Q4, right now also looks better use award that we are expecting an increasing revenues for Q4 from Q3 right now.

Are you confident that this travel trend. So it that this trend of Oh recovery will continue but we never know what the what the world will bring to us.

A couple of others.

Europe I was intrigued that the European numbers seem to be worse than the north American numbers, but it and same from the set of the pound. The so your first doing better at least until some of the recent renewed Lockdowns why do you think that Liz.

You know what would account for that disparity.

Europeans tend to be more cautious I think they're more hesitant Americans. The American consumer is generally much more optimistic than a European consumer and that's I think what's reflected getting reflected in the data does.

The speed of recovery.

Its the same I would say, but in Europe, we saw that a little bit later than in North America.

Okay Lastly.

Yes like club so its a pretty good start to its experience with you.

Closer to.

Then all the subscription model or two out.

Two other areas of the business or even though even if its.

Even if it's not immediate but in terms of.

Yeah.

Right now our focus is on growing checks flight clubs.

The next slide clubs revenues and not make any changes to the travelocity business.

Okay. Thanks.

Thanks very much.

Sure Jim you're welcome.

Thank you. Our next question comes from the line of Michael Kupinski from Noble capital markets. Your question. Please.

Thank you and I know it's been.

I know, it's been a hard quarter to do to work through it and much like the second quarter, but you lease beat my expectations. So congratulations on that.

So first of all right.

My first question like I know that in the U.S. Airlines are starting to see some of the <unk>. The largest number of people traveling since the pandemic began in March I would assume that most of that is domestic travel are are you seeing international travel picking up as well I haven't gotten the distinction between domestic versus.

International.

Yes, you are absolutely correct right now consumers in general and our members I'm much more interested in domestic travel that's what's changed.

That's what's generating most our revenue right now we expect that the international travel will be more a story of 2021.

Thank you Michael we also are quite happy because we feel better can be entering Q3 than what we actually predicted in our last earnings call. So we are quite happy that became mean, even above to look at the higher end of our expectations.

Great and I know that Ireland has recently kind of you know kind of.

Kind of went backwards in terms of shutting down their economy and I was just wondering if you know what you're starting to get here in terms of other European Union type company countries.

About walk downs and things like that are we kind of his Ireland kind of like one of those that isn't it you know.

I guess off.

Not likely that we're going to see other countries following that pattern or what your what is your sense since you're kind of close to that market.

Look diesel politico decisions first the very fragmented and second the politicians tend to change their mind quite rapidly. So it's.

It's very hard to predict what they will do even a week from today.

The beauty of our volatile modeling I think thats why also to travel suppliers like it so much if that it basically allows the member to looking to trip. So if I take for example, with Ireland. So they can look into trip to Ireland as soon as they are able and allow it to flights.

And again.

Nothing needs to be done to just call the hotel in deterring doubletree into a triple the airline ticket, which likely is very cheap at the beginning when flights are resuming so.

So it's truly a win win this model that we have developed its a win win for members and for the travel suppliers that we are working with and we actually.

We are actually seeing an increasing share of non members or consumers, who haven't been members before buying disallow trust.

So it's quite nice to see that despite this product allows us to expand reach even beyond the member base that you hit.

I know that you are indicating that you're expecting earnings to be roughly flat for the fourth quarter, but can you give us a sense of how what's baked into that number in terms of maybe the revenue trends both us and Europe. In particular, you saw such as sequential improvement from Q2.

Q3 in terms of revenues are you kind of expecting a similar type of.

Progression in terms of moderating revenue trends as we go into Q4.

Sure. We included some information on slide 10 in the presentation.

We expect core stepped out relatively stable not only in Q4, but we will remain in this cost a beef is roughly into 2021.

It will probably go up a bit because we will start spending more on marketing on the revenue side, we expect a increases from Q3 to Q4 as we said earlier right.

Right now just to give an example in the U.S., we have advertising agreements for Q4 books that are roughly 60% to 70% above all advertising that we delivered in Q3, so that makes us very optimistic however.

However, it's sometimes difficult to predict or maybe the appetite for change their mind and they want to pause, but when they're competing but right now.

We are clearly seeing that the trend of recovery in advertising revenue was is continuing.

Jesse as lustre is still strong.

But of course in light of a in spite of a lot of that positivity.

We have to be cautious and prudent because no one back in January or February knew what the world with C. difficile.

I know that you plan to wean yourself off of the voucher sales in the I think you had hoped that maybe that would have happened a little bit more so in the Q in Q3, how do you see that going into Q4, do you think that you're likely to see predominant kind of low.

Kind of like very strong voucher sales in Q4, as well or do you think that you're kind of getting back to normalized business.

Revenues are increasing over these quarters, so what the percentage of culture.

A percentage of revenue coming from voucher sales is decreasing as part of a as a percentage of overall revenue was.

And this is mostly because as I said because advertising revenues are growing again.

Got you and then one other.

Aspect of the quarter was the optimization processes that you put in place and these likely will kind of flow through as you go into next year as well I was just wondering if you can kind of give us a little bit better.

You know kind of.

How would you how do you see margins kind of improving as you go into next year and how important are these optimization processes as you.

Kind of look to 2021.

In general cost of revenues as a percentage of revenue was will tend to decrease because as revenues are increasing some of these cost plus to a fixed cost. Some of these costs like a customer service or member services be called them.

Decreasing SBR, obviously, becoming more.

Efficient and productive deal and then.

And then if I said the operating expenses, we are at the level. We are right now we see them to remain quite stable into Q4 and not increase dramatically again in 2021.

We have made seeking significant adjustments to our cost basis, you saw last quarter that our staff has been reduced.

And we are we but we are not planning to get back to a expense levels in 2020, one compared to where we were where we were before this credit crisis.

Thank you. Our next question comes online of Steve Silver from Argus Research. Your question. Please.

Good morning, everybody and congratulations on the progress I think it's really exciting to see the execution in these challenging times.

I guess my main question would be.

Given the fact that the revenues are showing a very strong positive trend because of the voucher sales.

Is there any commentary you can provide in terms of whether vouchers are being redeemed at this stage I know the revenues coming in and they are going as a payable on the balance sheet.

As it is mostly now it's your activity, bringing the cash in right now or are some of these doubters being redeemed or the voucher redemptions more of a 2021 story.

You can see from the balance sheet that a lot of Altrus off 40 Wilson Twentytwenty. One then 2020 two so I cannot see that the majority of the volatility are redeemed but.

But.

First of all just that have expired, yes of course, they get redeemed.

When it comes to refunds.

You can expect that we of course, making a reserve for future refunds that we estimate we estimate that based on actual refund thought that that we are seeing with expired law trusts and then b are actually being a extropy wouldn't and increased this rate, but if a if.

Then charged against revenues so the revenue we're actually seeing as you can.

Yes, you can expect as I said the revenue we're seeing it's not the full revenue off the voucher sales. It's a net revenue after the refund reserve that we create every quarter and obviously, if we sell more about just the reserve.

For future refunds is also increasing significantly.

Great that's really helpful. Congratulations again.

Thank you. Our next question comes from the line of Ed Woo from Ascendiant capital. Your question. Please.

Yes, Thank you and congratulations on the quarter on the vouchers are there any expiration dates on them.

Yes every vulture has an expiration date or the majority of Altrus expire in 2021 in 2022.

Once we get close to the expiration date, we speak with the travel supply or and in many cases. They will then agree on extending the validity of the ball just because when we sold the slouches early in the year table.

They were hoping things improve more quickly now things are improving maybe a little bit more slowly for them. So.

So they are happy the more people, we bring them into the equity sales and local.

Local businesses.

When the vouchers do expire who gets the benefit to the hotel our suppliers get it or do you guys get the benefit.

For a while just that get refunded or of course, the member gets the money back for a while just that are redeemed or we are retaining our shia into merchant or whatever gets paid out the OCIO football just that end up not being used that really differs from one country to the next based on local regulations.

In some countries you are entitled to retain the breakage in other countries you are not even if the worst.

It was even a different sometimes from state to state.

Okay, Great and then my other question is in terms of your outlook for travel or not do you see.

A strong recovery thing in the early part of 2021 or do you think it will be more in the middle or late half of 2021.

Right now the trend just the CMS a three months ago with a it's a very much focused on domestic travel yes, there's some international travel maybe to destinations where for example Americans I'm more comfortable traveling to like Mexico, but definitely seeing a redemption strong redemptions to Mexico what did occur.

We'd be and we don't see much across the Atlantic because American can Americans cannot a flight to Europe and the Europeans cannot fly to the U.S. what to Canada, but.

But what we are really hearing from our members is that as soon as they are allowed to do so.

They really want to take these trips and.

And look I mean, we are now at a revenue level, so almost 60% off where we were before this crisis with 60% of last year.

And.

Let's see I've I've looked at some other companies in the leisure species in the travel space Oh, Yeah.

We are actually very happy that we are probably the company that is recovering.

The fastest both in turn.

Both in terms of revenue recovery as well as getting back to profitability.

We actually feel that the strategies and products, we implemented a few few months ago in April and May and then.

And then the aggressive actions.

Actions, we took to reduce our costs are now really paying off and I think we are.

We'll see what some other companies report, but we are probably now in one of the best positions of.

Compared to other companies that I can see in this into space.

Yes, yes that definitely done a very good job rebounding.

My last question is on the local business you know do you see it returning onto as strong as the rebound has your travel.

Travel voucher business.

It's the category that we call. This most slowly right now actually more slowly it's entertainment or because they simply not a lot of events. Some virtual events are being advertised to our members but not much.

Local is recovering, but it's clearly a slower than tend to what tell a hotel business.

Thank you Okay, I'll now turn the call back to Mr. Hogan Patel. Please go ahead.

Well, thanks, so much ladies and gentlemen, appreciate your time and support and we look forward to speaking with you again next quarter have a nice day bye.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect your lines and have a nice day.

[music].

Hello, everyone welcome to the Travelzoo third quarter 2020 financial results Conference call.

That's that's been placed in a listen only mode.

The floor will be opened for your 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 school.

Ladies 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 form 10-K, and 10-Q and other periodic filings with the FCC.

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 Companys earnings press release issued earlier this morning and archive.

Recording of this conference call will be made available on the Travelzoo Investor Relations website at Travelzoo Dot Com Slash IR now, it's my pleasure to turn the call over to Travelzoos Global Chief Executive Officer, Holger, Bartel, and its chief Accounting Officer, Lisa Su, Lisa will start with an overview.

The third quarter 2020 financial results.

Thank you operator.

And welcome to those of you joining us today.

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

The presentation in PDF format is available on our Investor Relations website at Travelzoo Dot Com Flash IR.

On the first slide on page number three.

You can see the strong improvement of the business in Q3 compared to Q2.

That said with revenues almost doubling to $13.8 million in Q3 compared to Q2, we.

We have begun the path of recovery.

We were able to curb the losses not only by growing revenue, but also by quickly cutting expenses.

The trenches that revenue and EPS, increasing from Q2 Q3.

We were also able to reduce our operating loss from Q2 to Q3.

Travelzoo has decided to provide information on non-GAAP operating income going forward as we believe it better explains how management evaluates performance.

Page four shows the non-GAAP operating income, which decreased year over year by 69%.

However, we were able to turn to Q3 income positive with a result of $1.2 million.

Slide five give the detail on the items that are excluded in the calculation of non-GAAP operation operating income.

On slide six the cash balance of $51.7 million presented.

Almost doubled versus Q2 and year.

And year over year, it grew by more than 61%.

This is Seth is clearly driven by Dr. sales.

Slide seven and eight detail or revenue by business segment.

When neutralizing FX changes.

North America business segment recorded a decrease in revenue of 41% year over year.

In the Europe business segment recorded a decrease in revenue of 56% due to the ongoing effects of the pandemic.

While revenues from local steel stagnated in Q3 advertising revenue picked up compared to the previous quarter as advertisers have started coming back to make use of travel please reach.

The non-GAAP operating expenses presented in slide nine show a year over year reduction of 43%, mostly coming from head count adjustments and sales and marketing.

And process optimization across most.

Most areas of the company.

We believe we are well positioned to maintain the efficiency in the long run.

Slide 10 shows that our efforts towards increasing efficiency and regaining profitability has paid off.

We currently expect to receive it.

Philip close to breakeven or profit in Q4, if we can stay on the current path of recovery.

Now please turn to slide number 11.

Poker will provide an update on our members and the management focus.

Thank you Lisa.

Well. These days, we often emphasized the importance of pivoting and adjusting quickly to a changing environment.

Today I'd like to talk more about our members and emphasize how vital they actually are to travel to success.

With more than 30 million members.

It's in the half million mobile App users and.

And 4 million social media followers.

Travelzoo is left by traveling for was yes.

And the brands following its Quincy that's high quality by the industry.

Travelzoo members active.

71% took three or more trips last year.

The I wouldn't mind it.

75% say, they look forward to receiving ideas and deals from travel through and to be influenced.

Travelzoo members established.

Many are in the 50 plus age group. This is the fastest growing segment in leisure travel.

And our members have a higher disposable income and spend more on travel including spending at the destination.

Lastly, 67% of Travelzoo members are female.

The last month and travel through success in selling vouchers for the future travel have shown our members really love the brand and trust Travelzoo.

We believe this is a large and unique asset.

Finally, please turn to page 13.

We left this page unchanged from last last quarter because.

Because managements focus remains to see him for Q4.

Now back to the operator for our Q and a session.

The floor is now open for questions. If you have a question. Please press star followed by one on you touched on telephone at this time once again, if you have a question ladies and gentlemen, Please press Star then one on your Touchtone telephone.

Well open our first question comes from the line of Jim Goss from Darlington Research. Your question. Please.

Good morning, and thank you.

Hum.

I have a couple one.

One thing you always talk about the irresistibly price deals that are coming into the market, so you're able to draw attention to.

But it does seem like as with a number of things that they don't have to be just great deals they have to rely on consumer willingness to travel and I'm. Just wondering how are you.

Match up those.

Contrasting ishares right now are you seeing greater willingness.

Of.

Returning to travel and is it.

Pork helps with the flexibility as noted in the past or some distance.

Hello, how are you characterizing the shape of that recovery right now holger.

Hi, Jim So when we do service among our members about half of them are prepared to travel right now or in the next few months a lot of that is interesting domestic trips. The other half falls into that category of what I would characterize right now to ecommerce the dream about going somewhere next year.

And I believe Thats why our voucher model if successful will be course members can look in the deals that we are seeing today for travel in the future as soon as.

People are ready to travel again, we still anticipate a significant pent up demand of people wanting to go and wanting to go on trips.

So in terms of the timing of that recovery I know you talked about first quarter being potentially a profitable.

Is that is that fairly safe in the first quarter will be even better.

Just in terms of that shape for that rebound.

So far over the last six months, we have seen a very very steady recovery every month is getting better.

Q4, right now also looks bad or you thought that we are expecting an increasing revenues for Q4 from Q3 right now.

Very confident that this travel trends so at that this trend off of.

Recovery will continue but we never know what the what the world will bring to us.

Okay couple of others.

Europe I was intrigued that the European numbers seem to be worse than the north American numbers, but it's the end same from the side of the pound.

Your first doing better lift until some of the recent renewals locked.

Renewed lockdowns.

Why do you think that was.

Well it accounts for that disparity.

Europeans tend to be more cautious I think they're more hesitant Americans. The American consumer is generally much more optimistic than a European consumer and Thats I think whats reflected getting reflected in the data.

The speed of recovery, if the theme I would say, but in Europe, we saw that a little bit leads within North America.

Okay Lastly.

Jets like club sales has had a pretty good start to its experience with you.

Closer to Stan.

Stan.

The subscription model too.

Two other areas of the business or.

Even if it's not immediate but in terms of.

Good.

Right now our focus on growing check slide crops.

Next slide clubs revenues and not make any changes to the travelers who business.

Okay.

Thanks very much.

Sure Jim welcome.

Thank you. Our next question comes from the line of Michael Kupinski from Noble capital markets. Your question. Please.

Thank you and I know.

I know, it's been a hard quarter two to work through much like the second quarter, but you lease beat my expectations. So congratulations on that.

So first of all Hi, Mike.

My first question like I know that in the US Airlines are starting to see some of the largest number of people traveling since the pandemic began in March I would assume that most of that is domestic travel or are you seeing international travel picking up as well I haven't got the distinction between domestic versus.

International.

Yes, you are absolutely correct.

Right now.

Consumers in general and our members are much more interested in domestic travel.

What's generating most our revenue right now we expect that international travel will be more story of 2021 and.

Thank you Michael we also are quite happy because we feel better in Q3 than what we actually predicted in our last earnings call. So we are quite happy that we came in even above the low at the higher end of our expectations.

Great.

No that Ireland has recently kind of.

Kind of kind of.

Kind of went backwards in terms of shutting down their economy and I was just wondering if.

You are starting to get here in terms of other European Union type company countries.

About walk downs and things like that are we kind of xyrem.

Ireland kind of like one of those that are so that.

I guess off.

Not likely that we're going to see other countries following that pattern or what your what is your sense since you're kind of close to that market.

Look diesel politico decisions first the very fragmented.

Second politicians tend to change their mind quite rapidly so.

It's very hard to predict what they will do even a week from today.

The beauty of our volatile modeling I think thats why also to travel suppliers like it so much that it basically allows the member to locking the trip. So if I take for example, with Ireland. So they can look into trip to Ireland as soon as they are able and allow it to flight where Ireland again.

Nothing needs to be done to just close to what talented turned doubletree into a triple the airline ticket, which likely is very cheap at the beginning when flights are resuming.

So it's truly a win win this model that we have developed its a win win for members and for the travel suppliers that we are working with and.

We are actually seeing an increasing share of non members or.

Consumers, who haven't been members before buying these launches.

So it's quite nice to see that despite this product allows us to expand reach even beyond the member base that we have.

I know that you are indicating that you're expecting earnings to be roughly flat for the fourth quarter, but can you give us a sense of how.

How what's baked into that number in terms of maybe the revenue trends both us and Europe. In particular, you saw such as sequential improvement from Q2 to Q3 in terms of revenues are you kind of expecting a similar type of.

Progression in terms of moderating revenue trends as we go into Q4.

Sure. We included some information on slide 10 in the presentation.

We expect cost stayed relatively stable not only in Q4, but we will remain in this cost basis roughly into 2021. It will probably go up a bit because people stopped spending more on marketing on the revenue side, we expect increases from Q3.

You to Q4.

As we said earlier right now.

Right now just to give an example in the U.S., we have advertising agreements for Q4 book that are.

Roughly 60% to 70% above all advertising that we delivered in Q3, so that makes us very optimistic however, it's sometimes difficult to predict maybe the appetite for change their mind and they want to push but when they are competing but right now we are.

We are clearly seeing that the trend of recovery in advertising revenue, which is continuing vault.

Ultra Fios lustre is still strong but.

But of course in light of in spite of a lot of that positivity.

We have to be cautious and prudent because.

No one back in January or February knew what the world will C. difficile.

I know that you play in to wean yourself off of the voucher sales in the I think you had hoped that maybe that would have happened a little bit more so in the Q in Q3, how do you see that going into Q4, do you think that you're likely to see predominant.

Kind of like very strong voucher sales in Q4, as well or do you think that you're kind of getting back to normalized business.

Revenues are increasing over these quarters, so what the percentage of culture.

The percentage of revenue coming from voucher sales is decreasing as part of <unk> as a percentage.

As a percentage of overall revenue was.

And this is mostly because as I said because advertising revenues are growing again.

Got you and then one other.

Aspect of the quarter was the optimization processes that you put in place and the likely will kind of flow through as you go into next year as well I was just wondering if you can kind of give it a little bit better.

Kind of.

What you how do you see margins kind of improving as you go into next year and how important are these optimization processes as you.

Kind of look to 2021.

In general cost of revenue was as a percentage of revenue was.

Tend to decrease because as revenues are increasing some of these costs are still fixed cost some of these costs like cost.

Customer service, all member services be called them.

Decreasing SBR, obviously, becoming more.

Efficient and productive deal.

Then if I said the operating expenses, we are at the level we are.

Right now, we see them to remain quite stable into Q4, and a modest increase dramatically again in 2021.

We have made seeking significant adjustments to our cost basis, you saw last quarter that.

Our staff has been reduced.

And we we are not planning to get back to expense levels in Twentytwenty one.

Pierre to where we were where we were before this credit crisis.

Thank you. Our next question comes online of Steve Silver from Argus Research. Your question. Please.

Good morning, everybody and congratulations on the progress I think it's really exciting to see the execution in these challenging times.

I guess my main question would be.

Given the fact that the revenues are showing a very strong positive trend because of the voucher sales.

Is there any commentary you can provide in terms of whether vouchers are being redeemed at this stage I know the revenues coming in and Theyre going as a payable on the balance sheet.

But as it is mostly downstream activity, bringing the cash in right now or are some of these doubters being redeemed or the voucher redemptions more of a 2021 story.

You can see from the balance sheet that.

First of all just 40 Wilson Twentytwenty, one and Twentytwenty two so I cannot see that the majority of the volatility are redeemed.

Correct.

Dose of all just that have expired, yes of course, they get redeemed.

It comes to refunds.

You can expect we of course, making a reserve for future refund instead, we estimate.

We estimate that based on actual.

Actual refund on that that we are seeing with expired Lawtrust and then youre actually being extropy wouldn't an increased this rate but.

This is Dan charged against revenue so the revenue we're actually seeing.

So you can expect as I said the revenue we're seeing it's not the full revenue of Altrus sales. It's a net revenue off to the refund reserve that we create every quarter and obviously as we sell more about just the reserve for future refunds is also increasing significantly.

Great Thats really helpful. Congratulations again.

Thank you. Our next question comes from the line of Ed Woo from Ascendiant capital. Your question. Please.

Yes, Thank you and congratulations on the quarter on the vouchers are there any expiration dates on them.

Yes every vote. She has an expiration date the majority of Altrus expire in 2021 and 2022.

Once we get close to the expiration date, we speak with the travel supplier and in many cases, Steve will then.

Agree on extending the validity of the volatile because when we sold the small just early in the year Dave.

They were hoping things improve more quickly now things are improving maybe a little bit more slowly for them. So they are happy the more people, we bring them into the hotels.

Local businesses.

When the vouchers do expire who gets the benefit to the hotel suppliers get it or do you guys get the benefit.

For a while just that get refund that of course, the member gets the money back for a while just that are redeemed we are retaining our CEO and a merchant or whatever gets paid out the FCO football just end up not being you was that really differs from one country to the next based on local regulations.

In some countries you are entitled to retain the breakage in other countries you are not even it.

It was even.

Different sometimes from state to state.

Okay, Great and then my.

Q3 2020 Travelzoo Earnings Call

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