Q1 2021 Travelzoo Earnings Call
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Hello, everyone and welcome to the child those of you freeze the credit plenty of 'twenty, One financial results conference call on.
All participants have been placed in a listen only mode and the floor will be opened for questions. Following the presentation. So the east call is being recorded.
The company would like to remind you that all the statements made during the conference call and for centered in the slides that are not the steepness of historical facts constitute forward looking statements and are made pursuant to the safe Harbor provisions of the private check Rabies Litigation Reform Act.
Of 1995.
Actual results could vary materially from those contained in the forward looking statements of.
The 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 periodic filings with the S. E C.
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 this morning.
An archived recording of this conference call will be made available of the childhood the investor Relations website at travelers the dotcom Slash I R.
Now it is my pleasure to turn the call the hauled over it to the travelers is globally. The C E O hauger Bartel and its chief accounting officer of leases to at least I will start of an overview of the first quarter 2021 same nine shows the salts.
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 to Dot Com Slash IR.
We begin with slide number three.
Here you can see our Q1 revenue was $14 3 million.
We see continued improvement in our business.
We expect to see the same trend of revenue growth in 2020 one.
The stabilizing trend also shows an and small losses that has continued from Q4 2020 to Q1 2021.
We also increased our subscribers from $30 2 million as of December 31, 2020 to $31 8 million as of March 31, 2021.
On slide four travel for you has the state it is to provide information on non-GAAP operating income as we believe it better explains how management evaluates performance.
Slide four shows the non-GAAP operating income, which changed year over year from a loss of $1 9 million to an operating profit of 622000.
We believe the financial performance of the company is in line of if our expectations.
Slide number five provides details on the items that are excluded in the calculation of non-GAAP operating income.
Please turn to slide six.
Our continued success in voucher sales keeps pushing the positive development in cash balance.
As of March 31, 2021, consolidated cash cash equivalents and restricted cash were $72 million.
Yeah.
Slide seven and eight detail our revenues by business segment.
When neutralizing FX changes the North America business segment recorded a decrease in revenue of 20% year over year and the Europe business segment recorded a decrease in revenue of 52 per cent year over year.
While revenues from local still stagnated in Q1 <unk>.
Advertising revenue picked up compared to the previous quarters as advertisers have started coming back to make use of travel for us reach.
On slide nine you can see the quick adjustment of our cost structure at the beginning of the pandemic.
Has resulted in lower fixed costs.
Yes.
Non-GAAP operating expenses were reduced by 46%.
Mostly coming from head count adjustments throughout the entire organization.
The reduction of overhead costs.
In summary, as you see on slide 10.
Q1 was in line of our expectations.
Looking ahead, we expect for Q2 revenue to be in the range of $16 million to $17 million.
For operating expenses, we expect approximately $15 million.
We expect that we reported a profit in Q2.
Now Holger will provide additional information and insights.
Yeah.
Thank you Lisa.
Let's turn to slide 11.
Travels of always loved by the traveling with the us.
We look for quality all force travelers for members are after the wet.
And most importantly, the open for new experiences in the <unk>.
Survey from December of 'twenty 'twenty.
71% of travelers who membership.
The influenza step travel destinations.
Members tell us they trust the travelers.
And we believe that this trust is becoming an important competitive disadvantage.
Slide 13 gives an overview of what management and our global team muscle per store.
We will.
Spanned and she used the exceptional industry opportunities for sourcing high quality travel.
Entertainment and local deals.
For the travel to Memphis.
Continue to offer of travelers, who remembers flexible and worry free deals for future travel.
Net debt is working very well.
The growth check flight clubs profitable of subscription revenue.
And grow EPS in profits as demand for travel returns.
But for the operator.
Yeah.
Operator.
Participants as a reminder to ask a question you will need to press star one on your telephone keypad.
Again that is star one on your telephone keypad Tobey is there any question you May press the pound key.
The standby, while we compile the Q&A roster.
Yeah.
Your first question comes from the line of Mike All of coffee and ski your line is now open.
Thank you I have a few questions I appreciate the opportunity the Africa.
Where are the members growing at.
Just curious in terms of where you're seeing the growth is the growth in North America growth in Europe are you seeing growth.
If you could just tell me and where that growth might be coming from.
So in Q1 of the growth came primarily in the U S where we added members going for what we expect the growth to really come in every market because we see.
Once you must be more and more interest into travel again.
Gotcha and in terms of your revenue.
Outlook for Q2.
Are we starting to see Europe opened up now.
Is that of a component of where you are anticipating to see improvement or is it really being driven by the U S. At this point.
We see very positive trends for Q2.
Particularly the U K, where our consumers are more confident is relative Canada, where we see more confidence by advertisers.
Germany, France, and Spain. The situation is for a little different it's still comparable to Q1.
In the U S.
Definitely caught the confidence is increasing in treasuries.
Also taking off so so it comes from the U S U K Canada.
That's all from the new countries.
Gesture locked on scoring on right now.
And the <unk> can you talk a little bit about gross margins.
Obviously gross margins are influenced by some of your product development plans and I was just wondering if you could talk a little bit about debt as well I know that you were looking at the prospect of doing an Adobe software update I believe so maybe if you could talk a little bit about that but then just kind of give us a general idea of where you think gross margins can be.
True to especially as you look to this year and maybe looking forward maybe over the next couple of years.
Yeah.
Gross margin for the next couple of quarters will remain relatively constant to where they have the last few quarters since all of our trustee that's off to a strong and ultra C of O.
<unk> generated the higher percentage of our cost.
Cost of revenue.
Going forward.
We expect gross margin could go up if the vouchers become less important than advertising revenue is increasing.
In terms of debt gross margin you have an ability to manage that I guess, a little bit because of Europe product developments and so forth, but can you talk a little bit about where you think gross margins can go can they go as high as 88% or do you think that they'll probably be in the range of about 80 to the 85 or what.
Of your thoughts there generally.
While the expenses you are referring to product development I T et cetera, the op.
<unk> expenses for us of what they don't affect the cross margin the here for you.
Net margin.
The debt if we see Europe in Q2, the which we expect to go up quite significantly on the revenue growth and as we moved to you know of course, it's relatively stable.
Gross margin on the other hand.
Bobby in the next couple of years come back to the same level from where they were before the pandemic.
Okay.
Maybe I, maybe I confused how did you I think we're I'm looking at the product of the prospect of doing an Adobe software update does that not go into gross margin. So I mean does that not affect that or how I guess I'm curious about how that works.
The lease out the you're one of them for this.
Yeah that would be of capitalized project and any amortization of that project would go under our P. D line, which is.
Product development and our regular expenses.
Gotcha, Okay, and so there wouldn't be any impact from the gross margin from any of that type of a rollout. Okay. And then in terms of your P. P. P. A loan forgiveness of debt now expected in the third quarter and can you give us just a little update on how that might fall in terms of your expenses and how that might have.
Affect the numbers.
Yes.
Lisa.
Yeah, I can comment on that we've applied for forgiveness of or P. P. P loan, obviously that could take anywhere between 60 to 90 days from the time they receive it and you know anything that's government related we really can't.
Predict what could happen that could come back and ask further questions and delayed debt forgiveness process. So at this time, we're anticipating Q3, but it's very hard to say.
Gotcha, Okay. That's all I had thank you so much.
Sure Welcome Michael.
Your next question comes from the line of Jim Goss. Your line is now open.
Thank you.
I've got a couple as well.
First I was wondering you talked about the demographics as you always do and I'm I was wondering if the changes in any specific demographics over the course of the pandemic or is it the two compressed the time frame to notice anything like that.
Yeah.
In general our members.
On the income a little bit older.
During the pandemic, we actually saw.
Slight shift more towards more younger.
Members, who purchased and tool looked at our force.
Probably because they were more comfortable traveling now.
Now the debt vaccination saw accelerating everywhere, we see we're shifting back to on now.
Now the member's day, a little bit older gaining confidence and the.
Regaining of ultra share again.
Okay. So it might of them in some way has broadened your appeal since you've gotten the some samplings and demographic. She wasn't the head otherwise indeed that is indeed that is true because what we saw but in general we see debt. The younger population is more active in sharing.
Great deals with friends the.
Much more active on social media. So indeed, what we saw during the pandemic as Debbie broadened our reach of it more into segments that are younger and the reacquired.
Good luck with the amount of high quality member of the demographics.
Democrats equipment, which is actually.
Quite good for us because we believe travelers who should be of brands for everyone.
Okay. Thanks Holger.
Another thing in terms of the vouchers, which of them that much more prominent.
Can you talk about any shift in terms of it.
Either timeframes or terms of travel partners or anything else sort of taken place as is some of the travel of restrictions are eased in some of the Catherine says come back do you get better deals from Europe for standpoint, and can use sort of shorten the timeframe share offering.
And of what's happening in those regards.
No changes really receive continued strong demand for the volatile and I expect this to continue at least for the next couple of quarters on the one thing. We are seeing is that the refund rates decreasing and the that's particularly happening in the U K.
We see quite of decreasing the refund rates.
From Q1, so I think of that just shows that the members and consumers in general on more ready to travel again, which is good.
So the demand for the vault just continues to be strong.
Okay, maybe one last thing.
Could you talk about any patterns and trends you've noticed in terms of.
Users of your services versus the advertisers is there.
Do you need to get one before the other or of the advertisers are trying to get ahead of the game by participating even if they don't get the response right away.
How is that.
Net of relationship shifted.
I would see debt the member activity is probably up a bit the head of advertiser activity because first the advertisers want to see.
The good response to the advertisement and then they could get more money and that's exactly what's happening right now of real.
You might recall in our meeting last month, our earnings call last month.
We're showing some trends that member activity is now up to where it was a year ago.
And that's why we yes, even though in Q2 increased interest from our way of surprise us, but look in general our members.
We have for over 30 million as you know what they are very powerful in driving a large number of bookings and it's not just the it's just not the quantity I spoke earlier about trust and what really makes the difference is the quality of.
Members of travelers of Independencia make a lot of other companies didn't create their customers very well if any of you had purchased from anyone in the past any Trevor you might have.
We have seen that the you know companies for a very slow to respond to you with the didn't gave your money that you were or.
We actually increased customer service, we are <unk>.
Refunding, everyone within a couple of business days and you can read all across the web on reviews on travelers.
That our members on the the only person net but they trust us more to the then called the what if even seen before the pandemic.
That's very important for separate us from from from some other companies.
Okay, and maybe the one last thing the the.
You as the guidance was the.
Encouraging.
As you the strong profitability are you getting more and more Kathryn debt.
The plans you envisioned in terms of controlling expenses relative to the revenue growth you might achieve.
It is in fact, a working out that way such that you have an opportunity to be more profitable sort of like Mike was just talking about the gross margin then on all of those other ways as well.
You are.
As more and more confident that the.
The profitability of the company should be able to achieve something beyond just the revenue growth.
Yes, right now and the in.
In the past everything is going according to our plan and expectations and the.
We don't we don't see the changing so we are we are just executing along our plan and the.
And yeah, it's a.
It's it's it's going to accept the the S. We expect maybe Q2 was even a little bit stronger than what we originally expected. So that's very encouraging.
Alright, thanks very much.
Sure Youre welcome Tim.
Next question is from Mr. Celebrate your line is now open.
Thank you very much in the thanks for taking the question.
One question as it relates to the member base.
In the prepared remarks the <unk>.
<unk> for the last year, the I think it shows $31 3 million of this quarter 31 eight.
And I know you guys mentioned last year that the use of base had expanded by about 2 million members in the U S. Due to the exit of the competitor.
So given that there was an offset to the net use of growth.
I'm, just trying to get a sense as to any information or insights you might have in terms of the members that might have left the market.
Whether some people just took a break from having.
More subscriptions in a subscription, but just being members of travel deal services during the pandemic and whether you would expect over time and over the recovery period coming out of the pandemic that a lot of these members that had left the services would return overtime.
Yeah.
Yes, exactly as you say, Steve the last 12 months, we've certainly seen.
Decrease in member of stress because of unsubscribe ups. Some of them are temporary and the I would also expect that are wider.
The good number of these members will come back I mean, if you cannot travel of people are less interested in travel or force.
So now that you can travel again in the future rather the hope to come back that'd be hope them to come back and as you know what is the year over year, we saw growth because we added new members to be after the 2 million members in the U F N.
And we also added more members in Q1 of them in the previous three quarters from organic.
Yeah.
Organic sign ups inform on member acquisition.
The team.
Okay, great. Thank you for the insights and congratulations on the progress.
Yeah.
Next question is from Ed Woo.
Your line is now open.
Yes, congratulations on the recovery. My question is has it changed your view I know a lot of industry people were saying that it's going to be a multiyear recovery.
But given how you see that you know things are a little bit better on your end do you think it's going to be coming back faster than you thought maybe a quarter ago.
Hi, Ed Yes in the U S. I would say, it's coming back stronger and faster than probably what people think of demand and interest is primarily right now.
Domestic trips and vacations.
We see the fastest recovery as I said earlier in the U S and in the U K.
But the.
Just over the last couple of weeks some of the countries in Europe. For example, the open now for U S tourists means the namely Greece Croatia.
And Iceland, and the which just had an offering of the top 20 last week for Croatia.
Which following the incredible response by our members in the U S. Just because they see Oh, it's possible now to travel to Europe. So that keeps them coincidence, but we will see we are hopeful that the recovery is faster.
<unk> seen a lot of other industries debt there is pent up demand.
The coke.
The the comment from Jamie Diamond of Jpmorgan debt consumers in the U S are sitting on two trillion of.
The more money than they had before the pandemic.
And I mentioned in the call last the last months already we are generally seeing a shift towards longer vacations.
Because of vacations are more upscale vacations.
And that is also of course.
Something that we benefit from because of this means advertisers will be willing to spend more on for.
For more than these kind of all of force.
We also see it with the voucher stay of purchasing debt the average value of for voucher today versus before the pandemic is significantly higher.
That sounds good and then you know as the business recovers more will you take a.
More aggressive stance to grow your subscriber list for you increase of ratchet up marketing back to where it was to rapidly growth or is it still a very controlled growth.
It will be a combination of all of debt for sure we are.
The steel coincident debt, we will grow the checks lifelock member significantly this year.
We had the great opportunity non.
Last quarter or two it members from a competitor.
The very attractive for us and.
We also hope debt that could be a few more of these kinds of transactions in the future of some of our competitors competitors are still struggling.
Yeah.
Great well, thank you and good luck.
Things that have a good day.
We have no my questions I will now turn the call the over back to Mr. Hong of anybody Chow.
Yeah, ladies and gentlemen, thank you for your time and support and we look forward to speaking with you again next quarter have a nice day.
Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect. Your lines at this time have the nice thing.
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