Q1 2022 Travelzoo Earnings Call
Pardon me. This is the operator today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Hello, everyone and welcome to the travel to first quarter 2022 financial results Conference call.
At this time, all participants have been placed in a listen only mode and the floor will be opened 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 are presented in the slides there are not statements of historical facts continue to forward look.
Statements and are made pursuant to the 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 Form 10-K , and 10-Q and other periodic filings with the SEC.
As 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 on the travels to Investor Relations website at travel sued dot com Slash IR.
Now, it's my pleasure to turn the floor over to travel as global CEO , Olga Bartel, Chief Accounting Officer, Liza II and its global director premium membership, our vena Allo Wailea, Lisa will start with an overview of the first quarter 2022 financial results.
Yes.
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 <unk> Dot com.
Slash IR.
Let's begin with slide number three.
Revenues continue to recover from the pandemic and earnings turned positive again.
You can see that our Q1 revenue was $18 5 million up 30% from $14 3 million year over year.
Our net income in Q1 was $3 4 million, which resulted in earnings per share of <unk> 19.
Compared to the previous quarter. The number of members in Q1 increased by half a million to a total of $30 7 million.
Mainly due to the acquisition of our competitors' European subscriber base, who decided to leave the market during the pandemic.
On slide four we go into more details about the revenues and operating income of our two more significant business segments, North America and Europe .
Both of these segments had substantial revenue growth year over year and compared to the previous quarter, which reflects the expected path of recovery.
North America revenue grew 22% year over year, and 36% compared to Q4 2021.
The operating income in North America turned positive with an operating income of $1 7 million in Q1 compared to Q4.
Europe revenue grew 75% year over year, and 39% compared to Q4 2021.
With an operating income of 200000 in Europe . The operating income turned positive in Q1 compared to the previous quarter and year.
On slide five we.
We decided to provide information on non-GAAP operating profit as we believe it better explains how travel to evaluate performance.
This slide shows the non-GAAP operating income, which was $2 7 million in Q1, which is at the highest level in two years.
Slide six provides details on the items that are excluded in the calculation of non-GAAP operating profit.
Please turn to slide seven.
As of March 31, 2022.
Consolidated cash cash equivalents and restricted cash were $36 7 million.
The cash balance reach the expected level.
In the quarter more members traveled and redeemed or vouchers as we make payments two hotels, the cash balance decreases, but so do our payable.
As of April one this year, we changed our refund policy and vouchers and the majority of vouchers that are now purchased.
Our non refundable.
Slides eight and nine detail our revenues by business segment.
When utilizing FX changes the North America business segment saw year over year increase of $1 9 million.
And the Europe business segment increased by $2 4 million year over year.
Okay. Thank you.
And you may resume.
I apologize my phone disconnected.
Ill continue now slides.
Slides eight and nine detailer revenues by business segment, when neutralizing FX changes the North America business segment saw a year over year increase of $1 9 million and a Europe business segment increased by $2 4 million year over year.
Compared to the prior year period. The travel segment has picked up significantly as advertisers and partners have started coming back.
On slide 10, we have been able to lower our fixed costs during the pandemic.
We believe we can keep fixed costs relatively low in the foreseeable future.
While revenue is expected to grow.
We believe this should result in higher profitability going forward.
Looking ahead, we currently expect higher revenue and profitability in Q2.
We continue to see a trend of recovery in our revenue.
However, there could be unexpected fluctuations in the short term.
Now I turn it over to <unk>.
Thank you Luca.
So we expect the company's financial performance to improve significantly in 2022.
That's because we see more interest from travelers who members.
We know traveling entertainment companies want to work with us if the industry recovers.
If you turn to slide 11, you can see that with over 30 million members and 7 million mobile App users and 4 million social media followers traveled rule is loved by travel enthusiasts who are affluence.
Active and they are open to new experiences. The latest survey results what travelers to members in the U S showed that 58% in spite of the pandemic took three or more vacations in 2021, 94% have a valid passport in the U S and that compares to 43% of the.
U S population.
Slide 13 gives you an overview of what's our.
Management and global team are focused on we want to see the exceptional opportunity we have right now for providing our $30 million taboo members with exclusive.
And irresistible travel all source entertainment awkward and local offers and experiences.
We want to increase members more significantly in 2022, and we want to accelerate revenue growth.
We wanted to increase Jack's flight club profitable subscription revenue.
And we want to continue to grow profitability as the demand for travel return.
Now I'm going to turn over to our Vienna with travelers with global Directory premium membership.
And she's the executive overseas launch of travelers, who may that should will provide us an update.
Thank you whole Guy I am happy to speak about traveling through new initiatives towards a paid subscription based service, it's called travel meta and it will take subscribers to the travel and entertainment experiences.
Goodbye.
On slide 15, please see our travel meta logo.
For today's update.
<unk> identified six questions that we believe you our investors will be most interested in.
The first question on slide 16.
What is the Metropark and why is traveling so entering the metaphor.
Network is a network of highly and market shares virtual world focused on social connection and interaction.
Computer generated three D environment.
We foresee the metro bar as disruptive.
And abandoned the lucrative opportunities for innovative companies that are willing to be the first one Greg.
In addition by being part of the metaphor.
Travel meta.
It's Ken diversified travelers those carbon demographic.
The next question on Slide 17.
What is the market opportunity.
The Metro market size is estimated to be $800 billion in 'twenty 'twenty four.
Approximately $400 billion is the anticipated market size for non gaming related services.
On Slide 18. The question is what is travel meta.
Robinson meta is a paid subscription based service that provides.
With exclusive access to unique and cutting edge <unk> travel and entertainment experiences.
These experiences will be sourced from Korea glow.
<unk>.
Please note we will not speak creating these experiences that we will be licensing them from creators.
We are partnering with skills technologically.
To enable us to provide.
High quality experiences to our members.
Many of these experiences will be browser enabled and will not require the use of specific VR hardware.
The next question.
Slide 19 is what is our strategy.
We are building travel meta strategically using a phased approach to it.
Judiciously navigate the rapidly changing macro growth environment.
We will measure and assess the performance of each scene.
And deploy a process.
The newest improvement.
To monitor progress.
And of course to next steps accordingly.
Travel meta will be managed separately from travel group core business.
On slide 20, the question is.
What is the investments required.
Travel meta is being built out in a cost efficient manner with no significant upfront investment.
The cost of licenses broadly experiences will be paid for by pre registrations initially.
Annual subscription thereafter.
And finally on slide 21.
What are the status and timing.
Given the newness of the industry, we are spending additional time finalizing a few important technicalities.
Contingent on the status of our technical requirement requirements. We are now planning to launch phase one in May.
We will provide updates as the.
Great.
With that I am.
Handing over to the operator for questions for Pogos Lisa Thank you.
The floor is now open for questions. If you do have a question. Please press star followed by one on your Touchtone phones at this time.
Once again, if you do have a question, ladies and gentlemen, Daddy's Star followed by one on your Touchtone phones. Please hold while we poll for questions.
Our first question comes from Jim Goss of Barrington Research.
Okay. Thanks, and good morning, good afternoon, I guess.
Hi.
First I might make a comment or a question about.
Presentation, you just gave about the matters.
You say, it's going to be managed separately from core business.
Why not use it for.
Teasers for trips that you might provide risk elsewhere.
And a couple of other things I was wondering if you could talk about the impact of inflation in the economy and interest rates.
Offerings, you are giving in the willingness of your travelers to engage in your deals.
And finally I was going to ask about the types of deals being offered post COVID-19 versus previously in terms of maybe any variances you might have length of trips. What's included the expense levels or any other aspects say beach.
Trips versus educational.
And actually one other one Jack's flight club do you think.
That might have a much better opportunity this coming year.
Cause of the nature of rising plate prices I would imagine a wood.
And thank you.
Hi, Jim.
You wanted to start off with the makeup growth question and then I speak about the other three questions.
Yes, Hello, guys. Thank you Hi, Jim a question on the Metro birth, and Guangzhou, providing.
Why are we not considering piece there is the <unk>.
Answer is we do believe there are unique opportunities the macro growth Duane.
And at this time there are certain aspects of the business. Please on <unk>, we are unable to disclose but we will provide updates in due course of time as necessary. Thank you.
Okay.
The next question I wanted to quick question of inflation.
What we saw up until I would say maybe amongst our goal.
Is that most households in particularly in the U S hips quite some resources to.
Spend.
Question Ali.
And so you've heard all the rollins that prices for LCL hotels, and so forth are going up quite a bit.
Thanks Julien.
Of paint.
Pent up demand.
More recently and interestingly this morning of <unk> market.
Asking specifically about this question how will now consumers reacting to inflation.
And in that study. This morning, seven out of 10 consumers are seeing the adjusting get travel plans. This year because of rising prices, we actually see and feel it.
It's a good opportunity for us because.
The consumer is becoming more conscious about what things cost that period.
Consumers were booking.
If hotels, just because they wanted to go out and.
Travel seems to be coming to an end.
And so we yes, we stop seeing that.
There is increased interest in ultra that provide good value. So great hotels, great great vacations at good prices and Thats, what travelers with US which brings me to your fourth question, Jim about Jack's flight club exactly to see your with <unk> pricing going up we heard that some of the airlines that we had the best quarter.
<unk>.
Fields, and somewhat travel being quite tough one airline.
Consumers and our members are looking for yields and great fee us on flights. So we really think that we will particularly into you guys help us with the growth of <unk>.
And then in times in terms of yield all pieces of shifting more towards advertising again and you heard in the earlier.
You heard the earlier comments that you saw me.
We switched in most of the markets to nonrefundable vouchers.
And the reception by the members has been very good we haven't received any complaints people are now confident that they can travel.
So this is going to be very good for us because we don't have to.
Keep all these reserve score refundable volatile for the few trucks before the ones we sold in the past, but not for the new ones.
Alright, well, thanks very much for taking my questions.
And your next question comes from Michal Krupinski of noble capital markets.
Thank you and congratulations on your strong quarter.
I was wondering if you could just talk a little bit about your acquisition of <unk>.
<unk>.
Couldnt really good a lot of detail on that if you can provide some background and then also how much did that contribute in the quarter I can't remember when we actually close on that if you can kind of give us the background there.
Sorry, I couldn't hear you very well what was the question what acquisition Michael its.
Okay.
Oh, yes, yes.
Yes, so we acquired <unk>.
<unk> in Spain.
What they decided to exit that market last year decided to exit the U S.
We see that many competitors are focusing their exiting certain markets and competition is decreasing and so whenever we see an opportunity to acquire quality NIM goes from.
A competitor a former competitor.
The terms that are attractive for us we lived with it and Thats, what we did in Q1 yet.
Yes, we acquired these subscribers in Q1 and that have closed and daiwa added tool.
Our member base in Spain.
Could you tell me how much revenues contributed one Europe as a result of that acquisition.
It's too early to tell and also we don't want.
Break out our numbers in that much detail.
In your guidance.
That you anticipated higher revenue and profitability in Q2 is that guidance, referring to higher revenues and profit.
One argue just referring to.
Earlier Q2.
Higher revenue was steady with Q1 and Q2 last year and.
We appointed out today and in the last few calls.
Managing our expenses, we have build cost basis that is much lower than.
What we had before the pandemic.
So as revenues increase we will see higher profitability.
And could you talk about the cash burn versus your Mercury liability the percentage coverage ratio of your class to Mercury liabilities that has declined.
From the previous quarter I think was 16, 7% now that Congress talk about your comfort ability of your merchant like liability from your craft position.
So you'll see that in the balance sheet the merchant payables went down.
As the U S cash, but keep in mind that with the credit card processors.
Quite quite large amounts are kept for a few months.
Our accounts receivable.
Maybe not several months I think its 30 days.
Can't copy provide more accurately.
90 days days. So you have to you really have to see some of these receivables as cash that is coming in next few months.
Gotcha and then final question what do you believe you need to see your member subscription growth to your number of subscribers or total subscribers.
What number do you think I think you said you had $37 million now what number do you think you could grow that too.
Yet this week. This year, we are shifting really back into growth mode and based on what we know there's still a lot of opportunity in the markets, where we are strong in the U S and Germany in the UK.
So we really don't see any limitation right now to the growth of our member count.
Okay, but there is no corporate target.
We think that will need to accrue.
No specific target yes.
Okay Alright.
Gradually pulled together.
Thanks.
Your next question comes from Ed Woo.
Sandy and capital.
Yes, congratulations on the quarter. My question is has there been any easing.
Labor shortages or supply chain issues with some of the travel providers so that they could.
Travel demand comes back that they could expand either hotel occupancy or be able to put more planes in the sky.
Difficult for us to answer because we are not operating the hotels or airlines, we are using to CMC things that you are reading property in the <unk> in general that airlines and hotels have trouble.
Staffing up to 100%.
So we hear anecdotally the same thing.
But you're also hearing that DC slightly changing.
The overall economic picture is changing BELBUCA royalty.
Great and then my last question is on Europe , obviously.
Russia is still.
Crane.
Have you seen much of an impact at all from from what's going on in Ukraine and in Europe .
Sure.
We have not really seen any impact on our business on the interest of consumers to travel.
Steve with just great different destination, but we are still seeing in the U S strong interests of our members to travel to Europe .
Great. Thanks for answering my questions and I wish you guys. Good luck.
Okay.
Your next question comes from Steve Silver with Argus Research.
Good afternoon, everybody and congratulations on the progress its really exciting to hear the company moving back into growth mode.
I guess my main question is.
Given everything that the company has learned over the past two years as a result of the pandemic and hopefully we're now squarely on the other side of it.
Just trying to get your thoughts on maybe lessons learned in terms of building in flexibility to adjust as conditions change.
Just your thoughts on making the company more resilient to potential changes in the travel industry for.
For the long term.
Yes, I think we all learned valuable lessons over the last two years.
We have the benefit that we saw in some models, we are still over dependent on takeaway unless people were traveling but we're able to generate revenue we were able to reduce our expenses would be able to do so again should we need to.
So yes for us it was surely.
Great learning experience that it made a small that has made us more focused.
It also brought us back to what is essentially driving the growth of our <unk>.
Members in our business.
Great Congratulations again.
Thanks, Steve.
Okay, and I will turn back now to Mr. Holger Bartel.
Yes.
Thanks, ladies and gentlemen, thank.
For your time and support and we look forward to.
To speaking with you again next quarter.
Great day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect. Your lines at this time have a nice day.
Okay.
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