Q3 2022 Travelzoo Earnings Call
Segments, North America and Europe .
North America revenue increased 9% year over year from $9 7 million to $10 5 million.
The operating profit in North America was 812000 in Q3.
There to an operating loss of 918000 a year ago.
Europe revenue decreased 725000 or.
Or 14% year over year.
At constant currencies.
Europe revenue increased 2% year over year.
Europe had an operating loss of 551000 in Q3.
Compared to an operating profit of 600000 in the prior year.
On slide five.
We provide information on non-GAAP operating profit as we believe it better explains how travel as you evaluate your performance.
This slide shows the non-GAAP operating profit, which was $1 1 million in Q3.
Okay.
Slide six provides more information about the items that are excluded in the calculation of non-GAAP operating profit.
Please turn to slide seven.
As of September 32022, consolidated cash cash equivalents and restricted cash was $25 million.
The cash balance reach the expected level at the number of vouchers is outstanding has become smaller.
Slides eight and nine detail our revenues by business segment.
Yeah.
The North America business segments saw year over year revenue increase of 800000.
Turning to slide nine.
Europe business segment, which we report in U S dollars was and continues to be negatively impacted by the strong dollar.
We saw revenue in Q3 decreased by 725000.
In constant currencies revenue increased 200000 year over year.
Slide 10 shows that the pandemic led to a significant reduction of fixed cost.
We believe we can keep our fixed costs are relatively low in the foreseeable future while revenues are expected to grow.
For Q4 of 2022, we currently expect substantially higher revenue and profitability.
We see the demand curve and the travel industry returning to a more normal situation.
We believe this allows us to negotiate and recommend more and better offers.
Higher revenue.
However, there could be unexpected fluctuations in the short term.
Okay.
Now I'll turn it over to Walter.
Okay.
Thank you Wayne in Q2 in Q3, and indeed, our revenue was lower than expected due.
Due to the unique traveller situation to some of 2022.
Demand jumped after the pandemic.
But suppliers were still rebuilding capacity.
The demand curve temporarily shifted.
While the supply curve remained inelastic in the short term and didn't recover quickly enough from the cutbacks during the pandemic.
This pushed up prices to levels, where.
Where we did not want to recommend certain overpriced travel unusual offers to travelers who members anymore.
In 24 years of travels with history.
Haven't seen a situation like this and I believe it will not last.
It was frustrating for us while airlines other travel suppliers in online travel agencies benefited from overpriced travel services.
Our business remained flat.
Now we.
We are seeing a rapid change demand is returning to normal levels suppliers continued to build up capacity.
And we have more and better offers for our members again and revenues are accelerating.
I would like to provide you a few specific examples that maybe illustrate what we are seeing.
Today for example, we are presenting to travelers who members into the U K and exclusive offer at the growth of knob birth.
One of only 12 hotels in the U K awarded five Red stars and four rule sets by the British AE.
For roughly 400 pounds.
<unk> members can see here two nights in an upgraded room with leverage both breakfast and a welcome gift just two months ago.
A similar package would have crossed over 1000 pounds and hotel was full.
One other example in Germany last week travelled to members took advantage of our vacation package for 279 Euro that included flights and for these at the forced the Lisbon Plaza.
Just a month ago. The hotel's occupancy was so high in flight so expensive that don't offer for travelers, who members would not have looked attractive.
It very much does.
Or in New York prices at four Star hotels, often exceeded 400 to $500 per night or even more in.
In summary, now demand has flattened hotels offer to staffing up and we were able to negotiate exclusive member all source. This month for trips in fall and winter.
Members have already booked over 2000, and Steve just since the beginning of October .
Yeah.
As Youll see on slide 11, with more than 30 million members 7 million mobile App users.
And 4 million followers on social media.
Travelers, who is loved by travel enthusiasts, who are both affluent active <unk>.
Open to new experiences and they trust us.
The latest survey for travelers, who members India Shaw.
58%.
Two three or more vacations in 2021, which was the time when we still when the middle of the pandemic, 94% have valid Pos ports compared to 43% of the U S population.
To summarize slide 13 provides an overview of what management and our global team are focused on.
We wanted to increase the number of members and accelerate revenue growth to reach and then exceed pre pandemic levels.
We want to grow check slide clubs profitable subscription revenue.
We want to utilize higher operating margins to significantly increase EPS.
And we wanted to launch travelers who matter.
Speaking about travelers who matter at this point I'd like to turn over to our vena Laguardia with travelers, who was global director for travelers who meta.
Thank you Oh go ahead, I'm happy to speak about travel network.
<unk> initiate that.
Towards a subscription based economy in the merchandise.
Today's update we would like to address the status and timing of travel network.
Please turn to slide 16.
We launched phase one in Q2, and a controlled test environment to a limited set of Stephens Inc.
Significant learning.
We are continuing to extensively gathered data and analytics and deploy these into our strategy.
We plan to launch the next phase in Q4.
I'll provide updates.
Great.
The next slide on page 17.
What our travel experiences.
Robinson better experiences will be browser enabled entertainment travel experience that.
Allowing members to interact with and.
Okay.
This experience as well in many cases overcome limitations of access geography, economic and physical abilities as well as provide opportunities for social connection and interaction regardless of location.
Please turn to slide 18, which is good.
Interest is confirmed.
Troublesome NASA is targeting a completely new demographic.
Travel meta target gently.
Whilst <unk> meta target Gen Z, we interviewed existing traveled to remember who represent a wide range of travel enthusiasts and we always traveler.
So they are interested in traveling in the making right.
Let's be 7% of those who have heard of the metabolic want to travel into metals, Inc.
In comparison interest in shopping NFC and the metroplex.
2%.
This is in line with a consumer survey commissioned by Mckinsey <unk> company.
So are they confirmed that after making social connections.
Exploring digital World is the most important driver of interest in the metabolic west.
With that I'm handing over to the operator for questions the holdup with Ami.
Thank you the floor is now open for questions. If you do have a question. Please press the star followed by one on your Touchtone phone at this time once again, if you do have a question, ladies and gentlemen that star followed by one on your Touchtone telephone.
Please hold a moment, while we poll for questions.
Yeah.
Alright, we will take our first question from Mike Pinsky.
With noble capital markets.
Thank you and thanks for taking my questions I have a couple.
In terms of.
I was wondering if you.
You mentioned that you are seeing a significant acceleration heading into this fiscal quarter. I was wondering if maybe you can give us some sense of how October performed and whether or not you were referring to October or if youre, referring to the months of November and December in terms of the acceleration in travel.
I was just wondering if you can give us some framework of your kind of my comments.
Hi, Mike So I was indeed speak about October the office I gave examples for and the response, we are seeing is happening right now in October so it relates to October .
We are we see yes.
I would call.
Middle of July to mid low end of September more of an enormous slowdown.
We're just not able or.
Willing to promote as many offers to our members as we normally would do and now we're back to normal in fact.
So far for next months is looking quite good.
But to quantify it right now, but you heard from when that are we are expecting in Q4.
Based on what we know to be substantially higher revenues.
This quarter than in the year ago.
Okay.
In terms of gross profit margins, obviously were a little lower because of the revenue is being a little soft do you have any sense of where do you think that the gross profit margins tend to move back towards where we were like maybe in Q2, where they were like maybe 87% or so.
Do you have any sense about how gross profit margins look.
Yes, as our revenues continue to grow accelerate again, we will be getting back to D C and gross profit margins.
And then can you just describe in terms of your acceleration in travel is that.
Maybe if you can frame for us Europe versus.
North America in terms of are we seeing similar <unk>.
Increases or is it one versus the other.
All of the markets, we see the same trends really everywhere summer was what I talked about when I explained what happened and some of them. We saw that in our markets and now we are seeing to see them.
Acceleration in all our markets, both in Europe , and North America.
And it was expected that the cash position would come down because of the the merchant payables and so forth.
But it does.
Look when you look at the merchant payables as a ratio I'm, sorry, cash as a ratio of merchant payables. It looks like that percentage has come down with like 63% I think in the last quarter now its 51%.
Can you just describe to us what the cash management opportunities are here, how you view the redemptions of merchant payables and how you look at your cash position and capability.
Fulfilling those merchant payables, given your cash position.
Sure Wayne can comment on that.
We do of course every quarter quite sophisticated cash forecast.
And for Q4, we expect that cash will decrease again, a little bit by a few million dollars, but merchant payables will decrease.
Much more than that.
Of course, we have.
Asked a number of vouchers that are expiring in this quarter.
But when do you have any further comments on this.
Yes.
The cash movement in Q3 as older satellites expected.
We had expected.
Decrease in merchant payables, and we're expecting the cash balances too.
To see that improve as revenues increase.
So in terms of the.
Do you have a sense of how much of those.
Merchant payables are going to expire versus being redeemed.
Okay.
With regards to redemptions and exploration.
Even after the voucher.
Voucher will expire then.
In certain cases, and we have done still pay to breakage amount to the merchants.
So so there would still be paying it.
Gotcha, Okay forecast, our folks our forecast actually shows that our cash to cash position will decrease again, a little bit in Q4.
Stan that that will be the lowest point and then we will go up from there quite significantly in Q1 Q2 next year based on our current models merchant payables will go down more than cash so as a result, we.
Working capital the net working capital will improve over the next few quarters, which is important to us.
Got you Okay. That's all I have for now thank you.
Sure you're welcome Mike.
We'll take our next question from Jim Goss with Barrington Research.
Alright. Thanks.
Yeah, I'm I doubt. This is the same sort of situation you've lived through before given the extreme nature of the pandemic, but I'm wondering if you.
Could discuss.
That process and your role as suppliers rebuild capacity and develop the travel options that you can better suit your clientele.
And maybe talk about the volume of offers versus the uptake on those offers.
Hotels are full and the flight prices are high there would be less reason for them to want to employ an outside agent of any kind to sort of build.
Traffic.
But that as you move back into what you described is a lumpy process.
Yeah, just can you talk about that.
What you're going through right now and trying to get there and how you are communicating that with your clientele.
Yes.
Yes, it's a it's actually quite simple Jim. So first the world has never seen a period, where for two years people could simply not traveling so what happens when they can't travel again, they want to travel and they didn't care what it costs. So they were willing to pay prices that were just observed in the summer.
Hotels became makes me quite greedy and I mean, I saw cases, where three star hotels charged or $1000 a night, but people were desperate to go. If this is your first time in two years to visit your grandmother that your grandchildren.
Grandchildren have you don't have never seen you know you don't care you just go okay, but it's very unusual as you said second.
Hotels Airlines cruise lines, everybody cut their stuff during the pandemic. It takes time to hire some of the hotels in July they hit the demand July August September they hit the demand. However, they just did not have the people. So hotels actually made only maybe 50% of their rooms available.
Some of them, we're happy because they said Oh, if we sell 50% of our rooms at twice the price to make the same amount of money with less employees. So that's good for us. So that's really what's happening. It just takes time to re hire pilots trained them. It takes time to hire people to work in hotels again, it takes time to rehire people at restaurants, and anyone who has been at the hotel.
Over the last few months that the level of staffing service level, that's just not what they used to be but that's changing they all want to hire back to the levels, where they were before and that's what we mean by.
That stick supplier to supply in the travel industry is not coming back quickly. It just takes time and third so how do we how did the members respond to that well first of all as I said with these examples it's changing people are not paying these pipe prices any longer.
They are looking for better office hotels, I'm not fool anymore. Many flights are not running at full capacity any longer. So now we have fantastic offers for our members at the time when they have been used to very high prices. So for us it's actually.
Very good situation right now after these.
Four or five months of summer, which have been frustrating for US now members love to receive these offers they take advantage of them they take up on them.
At even higher levels than what we saw before the pandemic so in.
In general we are doing we are doing fine, but I. Just explained is today very diligently in the core because if earnings from other travel companies will be coming out in next few weeks people Wonder why are that what he is doing so well why are the airlines reporting record revenues and wireless travelers do not get back to where we were.
Before the pandemic and I hope.
We were able to explain today why this was a very unique situation. This year that we just haven't seen before.
Okay. Thanks, just a couple of other things.
There are some fixed costs that you were able to contain during the pandemic I wonder if you could talk about.
How much of those costs and expense levels, you think could return and whether you are still able to get a benefit of the <unk>.
The resetting of some of their cost structure during the pandemic over the next year or two.
First a lot of these expenses came from our Asia Pacific Division, which we decided to close down in 2020.
And second we are not expecting these to increase.
Significantly we are currently operating with.
With the resources that we believe we need to operate its business.
Kris will probably come in 2023 from two factors first of course like other companies, we will have to increase.
Salaries. So there will be a few percentage points that the expenses will go up because of just the inflation that we're seeing all over the world second we are planning to invest more in member acquisition.
We have spent the last six to nine months to really improve our efficiencies are no better than before Q4 is generally not a quarter wheel.
It makes little sense to invest in member acquisition, but the Q1 Q2 Q3 when that comes back we will increase our investments.
<unk>.
Related to that and expenses will go up maybe by $1 million or $1 5 million, but in general it.
Not that we are expecting Jim that our fixed costs will go back to the levels, we had before the pandemic.
Okay. Thanks, and then the last one with regard to meta.
The notion that Gen Z might be a good target market since that's probably.
Something ingrained in them.
As a grown up.
Is this something you think is transitory or something that they will then take the lead on and sort of expand into other areas.
As they move into other <unk>.
Stages of their life.
We were actually very surprised by we were actually very soon.
We know you can respond, but I just wanted to comment.
And we were very surprised when we surveyed our existing travelers who members which are.
Which are a little bit older how much of how strong their interest actually in the Smith, our offering was so that was my surprise, but indeed, the generation Z and.
In which we don't have a lot of.
Which currently don't represent a lot of our members.
That's the that's the completely new market, we are looking at and sorry to interrupt you. So please go ahead.
I agree with all of that.
It's typically the Gen Z audience, which tend to be early adopters of new technologies, but.
Clearly confirms that there are other generations as well we're also super interested in the metal box. So we definitely see this at least start it.
This is going to be a wider demographic and wheat.
Kent.
Alright, well, thank you very much.
Thank you.
Yeah.
We will take our next question from Steve Silver with Argus Research.
Thanks, everybody. Thanks for taking the question.
Most of my questions have now been answering that was a very great level of detail you guys provided so thanks for that.
I guess the last question that I had related to dimension of significant learnings on travels do matter.
Trying to get a sense as to whether theres something more specific in terms of the learnings that you guys have acquired.
Whether that relates more to just the potential demographics for the offering or whether there was just something embedded.
Embedded in the offering itself that you guys have learned along the way as you did them.
Sure I can take that so.
We are proceeding with a test and learn strategy and the test launch which was conducted in Q2, let's say really determine the feasibility of our strategy. The desk was conducted as mentioned previously in a controlled manner, both in Shanghai and extend.
Finally, we announced a limited set of users.
You had a quite a significant data from the study we have tweaked our strategy. Accordingly, now also given our attempt to be the functional provider travel experiences.
Please understand at this time, we can only get you can only provide limited information, but we have been following up with the data and analytics analytics provided from that study and implemented them and archiving strategy.
Great.
<unk> mentioned I think 57% of those remember you asked.
Best interest.
In a matter just trying to get a sense as to whether as the product is launched and you take your learnings and just.
Move on them further whether you think ultimately over time.
It'll be an opportunity to go after or capture some of those members that did not express interest at the outset.
Absolutely that is the intention that goes like any.
Technology adoption rate is limited initiative.
The early adopters, but that growth absolutely we do plan to at some point in Gloucester, even people and plus your people who had not yet ordered the motherboard or haven't expressed interest in the matter of months yet.
Great. Thank you so much for taking the question.
Thank you.
We will take our next question from Ed Woo with <unk> capital. Please go ahead.
First I want to say welcome back way, it's good to hear your voice and then the question I have it.
We know how to Matt you mentioned is beginning to return back to normal how much of it do you think it's because of seasonality or how much do you think it is because of the economy or how much do you think it's because.
I guess people already getting that travel initial travel out of the way and may not have that kind of high demand that they had previously.
Yeah.
And I think we should see this across all industries in any country in the world. We had this pandemic and that changed consumer behavior and.
They used more tech they were at home. They went out last he travels less and now everything is going back to normal.
Almost anywhere on any fronts seasonality was different seasonality is going back to normal so.
We are seeing expected to see him to travel industry.
I would say also that.
The pandemic has probably meet people in general are more interested in traveling because once you're actually at home for two years and you are not going anywhere you really realize what <unk> been missing so.
That's somebody coming from me, but from other companies as well we are hearing that generally consumers.
After this pandemic have more interest in experiences in travel.
And we still see in the past sometimes talked about a.
Sort of bucket list experiences that people are looking for and we still see a travelers with an in general members are interested in.
Trips vacations experiences that include things that go beyond what is normal higher price points better hotels better trips more activities. They want to do something special today, we have an offer in the U S for all members for truffle hunting in Italy, we already heard from.
Several members back right I always dreamed about doing that and.
That's the kind of behavioral change that we've seen among consumers, but otherwise I think in the next year and probably more quickly than expected things will shift back to the normal Paydowns, we had before the pandemic.
Great and my last question is just on the macro environment, you mentioned that a lot of these travel suppliers hotels they are wrapping up.
Have you seen them slow down or actually put back again, because theyre concerned that we have various macro issues in the U S and globally.
No I haven't heard about that.
Great well, thanks for answering my question and I wish you guys. Good luck. Thank you.
<unk>.
Sure.
Okay.
And I would now like to turn the call back to Mr. Hygge Park Martell. Please go ahead.
Okay.
Yes. So thank you for your interest in today's call and we look forward.
To speaking with you again.
Next year next time.
And have a great day.
Yeah.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time, a nice day.
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