Q4 2020 Travelzoo Earnings Call
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Hello, everyone welcome to the travels from fourth quarter 2020 financial results Conference call. All participants have been placed on listen only mode and the flow of 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.
Private Securities Litigation Reform Act of 1995.
Actual results could vary materially from those contained in the forward looking statements.
Cause 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 thank you.
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 company's earnings press release issued early this morning.
An archived recording of this conference call will be made available on the troubles of Investor Relations website and travels of Dot com Slash IR.
Now, it's my pleasure to turn the floor or wood of travelers as global C O Olga Bartell, and as Chief Accounting Officer, Lisa Soo.
Lisa will start with an overview of of 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 remarks. The presentation in PDF format is available on our Investor Relations website at travel do Dot Com Slash IR.
On the first slide on page number three you can see our Q4 revenue was $12 5 million.
We see continued improvement in our business.
Q4 revenue was in our opinion not indicative of this trend.
The revenue for Q1, 2021 is expected to grow.
And of stabilizing trend that also shows in our significant increase in EPS from Q3 to Q4.
Yeah.
Starting with Q3, 'twenty 'twenty travel Sue has decided to provide information on our non-GAAP operating income going forward as we believe it better explains how management evaluates performance.
Slide four shows the non-GAAP operating income, which changed year over year from $3 1 million to 500 of 47000.
We believe the financial performance is in line with our expectations.
Slide five provides details on the items that are excluded in our calculation of non-GAAP operating income.
Let's continue now to slide six.
Our continued success in voucher sales keeps pushing the positive development in our cash balances.
As of December 31st 2020, consolidated cash cash equivalents and restricted cash were $64 2 million.
Slide seven and eight detail our revenues by business segment.
When neutralizing FX changes the North American business segment recorded a decrease in revenue of 45% year over year.
And of Europe business segment recorded a decrease in revenue of 72% year over year.
While revenues from local still Sag needed in Q4 advertising revenue picked up compared to the previous quarter as advertisers have started coming back to make use of travel sees reach.
On slide nine you can see that the quick adjustments of our cost structure at the beginning of the pandemic has resulted in lower fixed costs.
Non-GAAP operating expenses were reduced by 47%, mostly coming from head count adjustments in sales and marketing and process optimization in the company.
In summary, as you see on slide 10-Q, four was in line with our expectations.
Looking ahead, we expect revenue for Q1 to be in the range of $14 million to $15 million.
For operating expenses, we expect approximately $14 7 million.
Yeah.
We expect for Q1, two result, close to breakeven or at a profit.
Now Holger will provide additional information and insights.
Yeah.
Thank you Lisa.
Please turn to slide 11.
S receive vaccination programs progressing.
Consumer confidence slowly strengthening.
Our members are becoming more active in responding to deals and buying them.
We started seeing this trend in particular in the U S. During the last two weeks.
We now see the strongest activity from travelers of members in the U S. Since March 2020.
As measured by use of sessions on the travel suicides.
In the U K.
We noticed a spike in purchases and week eight.
It happens.
Prime Minister Boris Johnson announced the timeline for removal of Covid related restrictions you clearly see as soon as the situation improves consumers quickly wish to travel.
We arrive at slide 12.
Travelers, who is loved by travel enthusiasts, who look for high quality deals.
Travelers, who are members of affluent.
Dave and.
And opened four new experiences.
75% food that travels influences the of travel destinations because of the trusts travelers.
We feel that trust will become a much more important competitive advantage of the travelers who brands going forward.
Yeah.
Finally on slide 14.
We provide an overview of management's focus.
We will expand and sees the exceptional industry opportunities of course sourcing high quality travel entertainment and local deals.
Continue to offer members flexible and worry free to use for future travel.
Gross checks flight clubs profitable subscription revenue.
And grow profitability burst of demand for travel returns.
Now back to the operator.
The floor is now open for questions.
If you do have a question. Please press the star followed by the one on your Touchtone phone at this time once again, if you have a question ladies.
Ladies and gentlemen that is star followed by one on your touched on pounds. Please hold while we poll for your questions.
Our first question comes from the line of Michael Kaplinsky of Noble capital markets. Your line is now open.
Thank you. Thanks for taking the questions can you talk a little bit about the competitor that exited the market in the U S and how were you able to pick up the 2 million subscribers there.
And then how big was the competitor and what is the potential of subscribers that you might eventually pick up and I have a couple of follow ups.
Hi, Michael I cannot comment on this topic of today, but we will issue some more information on this when we are ready to do so.
Okay, and then can you talk a little bit about the declines in subscribers in Europe and the <unk>.
Competitive position there.
Do you feel that you will need to step on the investment accelerated to gain subscribers to kind of you know.
You know it's kind of.
As a result of the balance of the mitigation efforts kind of waning of.
Covid.
Sure.
The decline of the subscribers in Europe is actually more result of.
Adding new subscribers of little bit more slowly because we know, particularly in the UK and in Europe.
In the European Union.
There have been quite of lot of travel restrictions businesses sort of shutdown unsubscribe rates of actually being lower than in the past so.
Net net we just see a small decline right now because we're not adding as many members of SBA.
As we have done in the past, but once travel resumes and we see clearly the trend in the U K picking up strongly.
Planning to add more subscribers and reverse the strength and cool again.
Gotcha, and then if you could talk a little bit about Jack's flight club because the revenues seemed a little disappointing to me.
Softer than I would've expected.
I know this is a promising new growth vehicle for you and I was just wondering if you could talk about your plans to accelerate revenue growth there of what you'd think looking forward, we might look for from Jack's flight club.
Yes.
From here, it's just simply a matter of time.
Tom.
In the travel business, we are right now offering our members to use for future travel do you have a lot of flexibility we've been very successful with the vouchers that we've been selling over the last 10 net 10 to 11 months.
Check slight drop is focused solely on airline on the airline.
Oh fears of airline tickets.
And that's obviously something that takes a little bit longer to come back.
But soon as people are more flying than I think we will see that revenue growth in the future.
And and <unk>, if I remember you were planning on moving Jack's flight club beyond just the airline travel when you were trying to incorporate other aspects of your business into Jack's like how does that not happened yet or what are your thoughts. What are you. What are you doing there yet at this point to integrate yes.
Yes, we are doing this when the timing is right. We started introducing chex like club to our U S members.
And we just have to pick the right time when when it's good to do so we expect that to pick me into next couple of months.
Okay Gotcha I'll, let others ask questions. Thank you for taking my questions.
Sure Michael will come.
Thank you. Our next question comes from the line of Jim Goss with Barrington Research. Your line is now open.
Thanks first of all follow up on Michael's questions about Jack's flight club.
I was wondering if the challenging situation that caused some write downs related to it would impact the price you would have to pay to purchase the rest of that asset or is it a cast in stone from the first deal.
Lisa do you want to answer this question. Please.
Yeah. So we have a put call option to purchase of remaining 40% based on if they achieve certain thresholds.
At this time that number is on determinable it depends on how the 2021 results come out.
But I would expect that that's something that we will discuss later this year.
It's not fix on tone at all.
Alright, thank you.
But.
Just to be to you just to be clear Jim the choices in our hands of we have to we have to flow right to acquire.
Towards the 100 per cent of Jakafi itself, and then we will consolidate it fully right now we're not consolidating of truly.
Okay. Thanks Holger.
Secondly, our staffing.
Maybe one of the silver lining of says then well it's unpleasant to cut down on staff. That's helped your cost structure, but I imagine some of that might have to be rebuilt as you resume some growth profile.
Particularly in sales and marketing.
And I'm wondering if you could comment on how of that that might rollout and how you might strategize. The return of some of those costs and expenses have been saved at this point.
Yeah.
We are not we're not anticipating any significant.
Significant increases into of course structured this year, yes, you're right, we will probably increase our marketing spend particularly for mark for subscriber acquisition.
On the expenses will be fall well below pre COVID-19 levels.
Okay.
Okay and finally.
I was wondering if there are any key metrics, we should be looking at to evaluate.
Our research on and Hmm.
Sure travel that would've impacted you domestically here.
In the United States, and North America, but also it would be great to hear some insights in terms of Europe, which seems to have had even more strict border controls on how you fit how you see that market reopening.
Hum.
In terms of travel both within Europe and from Europe.
Two other countries.
Yes, it's really a voluntary consumer confidence over or correct and Uh huh.
The metric is probably to see how our consumers are looking to jump back into travel.
What we are seeing here as well as other companies. That's why we gave earlier this UK sample.
Soon as good clarity on when people can travel again doesn't.
There is an immediate jump in we've heard from other companies in the U K debt their revenue, which went up of.
The debt boys joins the speed of speech Bye bye.
By quite a bit.
Also what we are seeing is debt.
People are much more interested now in debt.
The nation's day might not have thought about before.
On the.
With a slight Maldives, South East Asia further away one off of <unk>.
Billions of safaris.
It's clear that there's on the one of them very strong pent up demand for travel in general.
In particular for.
Experienced this debt might even of course more so I think this is something that will be good for.
The entire industry and particularly for us.
Okay.
Am I correct in thinking that day.
The European continent has been more.
Restrictive and contagious me more of a restrictive and certain other.
And our borders.
And are.
Are we thinking are you thinking later this summer or into 2022 or.
How soon before you.
Is your sense, there's going to be any relief.
That would enable people to make those choices.
U S recovered more quickly actually you see traffic and a member of interest is already higher than 12 months ago.
Next is the UK, which has accelerated quite a bit since the middle of February and we expect the German you speeding up their friends to come soon after I don't think it's a matter of six to nine months I think the recovery will happen more quickly.
We will see that on the.
On the revenue side of travelers, who as well.
Alright, thanks, very much appreciate it short term.
Thank you. Our next question comes from the line of Ed Woo with <unk> capital.
Your line is now open.
Yes. Thank you you mentioned that I assume has.
Travel restrictions on that you plan on adding more subscribers is that similar to you know.
Your expectations for revenue growth in terms of you expect to add marketing expenses, maybe you know at the end of this quarter or maybe on next quarter to ramp ups of subscriber growth.
It depends on the opportunity for us in fact.
We have increased a little bit.
Marketing spend this quarter, because we are able to acquire in the U S. Right now of new members at lower.
On acquisition of course, then.
In the last 12 months or even before Covid.
So that's good and when we see these opportunities we will take advantage of it all of them.
At least from now as a subscriber cost have they've been lower or about the same or have increased of things are opening up.
Right now in the USD on lower than what we've seen in the past.
In Europe, we are not really doing much subscribe acquisition, because it's not the right time.
Great and my last question is you know there's a lot of discussion.
Rise of alternative accommodation of people don't want to stay at hotels through more of a day of houses.
Have you seen a shift back to hotels has no cases of come down or do you think of.
It's more of a permanent shift in the way people travel.
What we've seen in the U K is really a strong interest on domestic travel very quickly after hopefully need of travel restrictions will go away on hotels, where we open.
In the U S. There's more interest in actually going to a faraway places and being a little bit more adventurous.
Great well, thank you and good luck.
Sure.
Thank you. Our last question comes from the line of Steve Silver with Argus Research. Your line is now open.
Thank you and good morning, everybody a couple from me.
First I noticed that.
Talking about the licensing revenue is coming out of Asia.
Obviously, it's just getting off the ground there with a lag. So the Q4 revenues would reflect Q3, which was really just at the beginning of the transaction.
I was just curious to know if even directionally.
Any insights you might have in terms of the rebound of travel in Asia.
Just.
Give some sense of the trajectory in that region moving forward.
Yeah.
I see so as you saw from previous.
Announcements to be F on.
On license agreements and some of these countries.
In Japan, our licensee gets reported in that things are recovering so that's good.
In Australia, Singapore, and southeast Asia, all activity or the activity level of the licensees not bad debt Greek yet but.
Keep in mind debt in.
Southeast Asia.
And China travel is still a little bit more restricted than it is in North America.
Okay, Great and then last one given the competition.
Leaving the U S market as you mentioned in the press release as well as the divestiture of your interest in the we go subsidiary.
Just trying to get a sense as to whether the marketplace has a lot of startup activity.
Going on that might present new opportunities.
Given all the disruption and changes in travel around the world and.
Whether there might be opportunity for smaller players to get in or really it's just a lot of the larger players are are maintaining a dominant share of market moving forward.
We still believe that Czech slide clopper that subscription services are really pick of opportunities for us it would be probably wouldn't be much harder to do than that of just COVID-19.
<unk> demi click more testing so.
That just was forced but that's still a big opportunity for us going forward.
Beyond that no.
Before of Tripadvisor make announcements about subscription.
Programs.
On this obviously is a great opportunity for us as well you have provided our services and it's a very valuable service to travelers who members go.
We are providing them with exclusive offers it'll really be of provided that the service completely for free over many years.
But we believe going forward in the future of the alpha opportunities.
Opportunities too.
<unk> also implemented some peaceful members paying for some of the ex and services that we have.
Great. Thank you very much and congratulations on the execution of a very challenging year.
Great. Thank you so much Steve.
Okay, I'll turn back now to Mr. Hogan of bar Kal.
Yes, ladies and gentlemen, thank you for your time and support.
We look forward to speaking with you work on next quarter have a great day.
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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