Q4 2022 Travelzoo Earnings Call
Speaker 1: is being recorded.
Speaker 1: 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 1995.
Speaker 1: Actual results could vary materially from those contained in the forward-looking statements.
Speaker 1: 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 SEC. Unless required by law, the company undertakes no obligation to update publicly.
Speaker 1: any forward-looking statements, whether as a result of new information, future events, or otherwise.
Speaker 1: Please refer to the company's website for important information, including the company's earnings press release issued earlier this morning.
Speaker 1: An archived recording of this conference call will be made available on the Travel Zoo Investor Relations website at TravelZoo.com slash IR. Now it's my pleasure to turn the floor over to Travel Zoo's global CEO Olga Bartel, its Chief Financial Officer Wayne Lee.
Speaker 1: and its General Manager, Travel Zoo Meta, Arvina Alawalia. Lane will start with an overview of the fourth quarter 2022 financial results.
Speaker 2: Thank you, Regina.
Speaker 2: And welcome to those of you joining us today.
Speaker 2: Please open or refer to the management presentation to follow along with our prepared remarks.
Speaker 2: The presentation in PDF format is available on our Investor Relations website at Travelzoo.com or at Travelzoo.com slash IR.
Speaker 2: Let's begin with slide number three.
Speaker 2: Revenue growth accelerated in Q4, leading to much stronger earnings.
Speaker 2: Our consolidated Q4 revenue was $18.6 million, up 36% from $13.7 million in the previous year.
Speaker 2: and in constant currencies it was 19.4 million, which is an increase of 42% year-over-year.
Speaker 2: Operating income, which we as management call operating profit, was $3.6 million, which is approximately 19% of revenues.
Speaker 2: compared to an operating loss of $3.8 million in the prior year.
Speaker 2: As of December 31st, we have 30.4 million unduplicated members.
Speaker 2: compared to $30.3 million as of December 31, 2021.
Speaker 2: on slide 4.
Speaker 2: We go into more details about the revenue and operating profit of our two more significant business segments, North America and Europe .
Speaker 2: North America's segment revenue increased 53% year-over-year from $8.6 million to $13.1 million the
Speaker 2: The operating profit in North America was $3.7 million in Q4, compared to an operating loss of $2.1 million a year ago.
Speaker 2: Europe's segment revenue increased from 4.3 million to 4.7 million or 9% year over year.
Speaker 2: At constant currencies, Europe revenue increased 23% year over year.
Speaker 2: Europe had an operating profit of 42,000 in Q4, compared to an operating loss of 1.7 million in the prior year.
Speaker 2: on slide five.
Speaker 2: You can see that our operating margin for all of 2022.
Speaker 2: Reach at 11%.
Speaker 2: which is at a level higher than our operating margins before the pandemic in 2020.
Speaker 2: Before the pandemic, TravelZoo's reported operating margin was much lower because of operating losses from our Asia-Pacific segment.
Speaker 2: In March 2020, Travelzoo decided to exit its Asia-Pacific business and operate it as a licensing business going forward.
Speaker 2: Now the operating margin shows the true profitability of Travelzoo in North America and in Europe .
Speaker 3: Slide six.
Speaker 2: shows that our operating margin in North America...
Speaker 2: 29% for Q4.
Speaker 3: On slide seven.
Speaker 2: We provide information on non-GAAP operating profit.
Speaker 2: as we believe it better explains how TravelZoo evaluates performance.
Speaker 2: This slide shows the non-GAAP operating profit, which was $4.8 million in Q4.
Speaker 2: compared to a loss of $2.4 million.
Speaker 2: in the prior year.
Speaker 2: Slide 8 provides more information about the items that are excluded in the calculation of non-GAAP operating profit.
Please turn to slide 9 as of December 31, 2022.
Consolidated cash, cash equivalence, and restricted cash was $19.4 million.
The cash balance reached the expected level as the number of vouchers outstanding has decreased greatly.
at the end of 2022.
Slides 10 and 11 detail our revenue by business segment.
The North America Business Segment saw a year-over-year revenue increase of $4.5 million.
Turning to slide 11.
In your business segment, which we report in US dollars.
was and continues to be impacted by the strong dollar.
We saw revenue in Q4 increase by 384,000. But in constant currencies, revenue increased 1 million year over year.
Slide 12 shows that the pandemic led to a significant reduction of fixed costs.
We believe we can keep our fixed costs relatively low in the foreseeable future while revenues are expected to grow.
For Q1 2023, we currently expect higher revenue and profitability.
During the pandemic, we have been able to lower our fixed costs.
We believe we can keep our fixed costs relatively low in the foreseeable future.
Now I turn over to Holder.
Thank you, Wayne.
Revenue growth accelerated in both North America and in Europe , leading to much stronger earnings.
growth accelerated in both North America and in Europe , leading to much stronger earnings. As the recovery from the pandemic continues,
We will leverage Travelzoo's global reach and trusted brand to further improve earnings in future periods.
With more than 30 million members
7 million mobile app users and 4 million social media followers Travelled with love by travel enthusiasts who are affluent
active
and open to new experiences.
Slide 13 provides more information about our members.
87% say they are open to new destinations and travel ideas.
So, travels who members are travel enthusiasts.
Slide 15 provides an overview of what management and our global team are focused on.
We want to reach and surpass pre-pandemic number of members and accelerate revenue growth.
We want to utilize higher operating margins to significantly increase EPS.
Growchex Flyclubs profitable subscription revenue
and launch TravelSue Meta.
At this point I'd like to turn over to Avina.
Hi everyone. Today's update will be super quick since the team is pretty busy with the launch of phase 1 of Travel to Netta in the coming weeks.
For today, please turn to the next slide for a first look at one of Travel Hello sentient beings, I am Albus, your MC square. Haha sorry, physics joke. Come on, I have much to show you.
With Travel to Meta, we can go anywhere and anywhere with any who winning. This is traveling in the Metaverse, where you can explore hard to reach corners of the world. 10th century Vikings. Oh, this is lit. You can travel to the new spaces beyond the...
Oh, bummer. If you want to know more, just connect. I already did. You can say it. I'm genius.
Thank you.
With that, I'm handing over to the operator for questions for Holger, Wayne, and me. Okay.
The floor is now open for questions. If you do have a question, please press the star followed by the number 1 on your touch tone phone at this time. Once again, if you do have a question, ladies and gentlemen, that is star followed by 1 on your touch tone phone. Please hold while we poll for questions.
Our first question comes from the line of Michael Kopinski with Noble Capital Markets.
Thank you for taking the questions. I appreciate that. A couple of questions. I was wondering, Holger, can you kind of – you indicated that the third quarter shaping up could be a little bit better. I'm sorry, the next quarter shaping up could be a little bit better. I was just wondering if you can kind of put some color around that. What are you seeing in terms of people traveling both North America versus Europe ?
members that's of course resulting in more activity by our members and also advertisers are back much stronger than last year because there's more confidence in travel and while you know while we have high inflation everywhere and possibly recessions coming travel is one of the areas where consumers don't want to
They don't want to give up on it. They just want to do more for less and they are looking for better deals. And that's why I think we are well positioned. So we see that continue in Q1. As you saw, North America was a bit stronger. Europe is still lagging a bit. We see that. For Europe , B overhears and were opposed to celebrating.
gap closing in Q1 and probably this year. So in general in Europe travel activity is also quite good and our business in Europe is improving better.
and more quickly now than probably last year. So that's good.
Gotcha. And then can you give us some color on box for sales versus just at versus advertising in the quarter and I noticed that what you know as I've been traveling as well that prices in hotel rooms have gone quite high in
Then it seems like more recently we started to see more discounting and was just wondering if you can add a little bit of color on that too.
To answer your first question, vouchers were very important during the early days of the pandemic, I would say even the first two years of the pandemic.
because people just couldn't travel and so they purchased the vouchers for future travel. They are less important today, much smaller percentage of our business than they were in 2020 and 2021. Advertising revenue is now the majority of the revenue that we generate.
We have been back to patterns, what we saw in 2019, and the same is with travel behavior. So with regards to your second question, we are clearly seeing now that there are patterns of periods when hotels are busy and patterns of periods when they are less busy, and that provides a set of opportunities.
you know we thought that maybe there would have been a little bit faster growth and I know that maybe you've taken your foot off the accelerator of that one but can you kind of give us your outlook for Jack's Flight Club? Yes you're right it grew less in 2022 than what we were hoping for but we also were looking for the right time to promote the service now airfares are very high.
People are very interested in a service that provides them information about fear seers. So in 2023 we are looking at much faster growth of Czech Slide Club compared to what we saw before.
Gotcha. And then just a final question about margins. You know, the you mentioned that the increase in the margins was due to the absence of losses in Japan, but I believe that you had made some structural changes as well, like decreases in office space and so forth. And I was just wondering, now that youGh nests the
move to more of a licensing agreement in Asia and with the structural changes that you've made, can you kind of give us your thought about what are the prospects of margin improvement and what could be the sustainable margins for the company?
You're absolutely right Michael, it's a combination of both. We just wanted to make it clear that operating margins before the pandemic were not that much lower if we actually eliminate the investments we made in Asia Pacific. So that was one element and the other element is of course as you say that we have changed our cost structure permanently.
Thank you.
If there are any questions left, yes. Thanks, Michael.
Your next question will come from the line of Jim Goss with Barrington Research.
Thank you.
how you would evaluate travel zoos trends right now relative to broader industry measures for hotels, airlines, and other services like Expedia that make more direct bookings, and why do you think you would...
lead or lag any of those particular broader trends. Clearly coming out of the pandemic there was pent-up demand and as we said in the last quarter people were traveling even more than they would have without the pandemic happening. So flights were full, hotels were...
completely full airlines and hotels were not even operating at the same capacity. Now they're increasing capacity. People are looking more for value. So in general,
You know, when you see travel suppliers having reported relatively good numbers recently, for us, I think 2023 will be a year where we'll be doing better than 2022 just because there is more opportunity for us to do what we are best at.
which is negotiating and finding offers for our members that inspire them to travel and helping travel suppliers to really fill those dates when they are not busy and the destinations where they are maybe less known or...
destinations where they are less busy in lower seasons. That's what travel is about.
So do you think there might be a reason you might lag sort of the direct placements for a tow replacement and flights etcetera, but you would catch up now as that?
and maybe even at least grow as fast as some of the industry trends once.
once that interest in travel revives.
Yes, I think that's a good description. You put that forward very well, Jim. In general, when you look back, I mean, we're a company that's been around for a long time and in periods when people are watching their wallets.
closer and we definitely are entering such times this year with inflation continuing to be high and some of the money that was spent sorry that was spread out by governments across the world that money is evaporating and so people are looking more for value and for deal so I think we are better
of, vis-à-vis Europe , if Europe could be viewed as...
sort of collective continent rather than a group of countries. Is there more interest in international travel?
And this side of the pond versus that side of the pond No difference really between the US and Canada between Europe and North America also no big differences Yes, you're right people love to travel more now across
The oceans further distance Europe is particularly popular now for
our members in the US, we clearly see that they want to go out again, they want to visit Europe , they also are now interested increasingly in Asia Pacific. And so I would just say maybe in Europe , the advertiser a little bit more cautious with coming back and advertising, but we are seeing a lot of
Could you talk about consistency or differences among those categories in terms of the value in the outcome of theearics reach?
consistency or differences among those categories in terms of the value and the economics of each?
Not really because, I mean there's not really a big difference between them because in the end
We cater to what I explained earlier travel enthusiasts, people who are inspired by our offers to go to places they didn't even think about. And the media, how we reach them might be different but their interests are the same and the behaviour.
All right, well, thank you very much. Sure. You're welcome.
Your next question comes from the line of Ed Wu with Ascendant Capital.
Thanks for taking my question. My question is, you know, during the pandemic, a lot of travel suppliers, particularly hotels reduced their capacity because they couldn't find labor. Has that improved? Do you see more supply coming online with hotels as the labor market improves in the US?
Yes, not only hotels but also airlines. They have more capacity and also the hotels have stepped up. We see that happening more quickly in the US.
than in Europe just because of the differences in labor laws but yeah absolutely yes.
Great. And, you know, what are you seeing for the summer travel season? Do you see it as, you know, having as robust as it was last summer as everybody came back? Or do you think that it's beginning to have more normal trends?
You have to wait and see, but it's a good question. What we see is that members are booking trips further out than they did last year. For example, I just had a really fantastic offer in New York and it's available for summer.
A lot of our members booked already trips to New York for summer. We didn't see it quite as much last year, so people are booking trips further out, but we will have to see if people take these trips.
Great. And on the inflation front, have you seen travel suppliers able to pass on increases and consumers willing to pay the higher prices?
Not so much a question for us because we are not a travel supplier but from what I can see, I think consumers are still accepting the higher prices. Let's see how long that lasts. I expect that that could change over the next six months.
Great. Well, thanks for answering my questions and I wish you guys good luck.
answering my questions and I wish you guys good luck. Thanks Ed.
Our final question will come from the line of Steve Silver with Argus Research.
Hi everybody, thanks for taking the questions. Most of them might have been asked already, but I've got a couple left. First of all, Holder, you mentioned that the management's focus to continue to expand the member base looks to be pretty flat year over year. Just curious as to whether there are particular steps that can be taken to meeting the needs of the SELECT Library. Does anyone want to comment on what to expect because of COVID-19.
that our membership is offering to consumers. We haven't done that so well over the last two years. We're going to do it more and obviously also investing more in marketing and making the brand more known. And beyond that I think it's just the changes in what's happening in the industry that are helping us.
I know it was Michael or Ed who just mentioned that they were looking to book a hotel and it was so expensive last year. Last year you were often happy to even find a hotel if it wasn't booked out yet. It is changing and so people are now looking more for the kind of service that we have.
that we are providing and that has made us so popular among these millions of travel enthusiasts over the years. So the industry trends are just simply helping us and you're right in the last three years during the pandemic we didn't grow our member base but we're looking to change that this year.
Great. And just one basic big picture, over the last couple of years, there's been significant changes in the way both the company has operated in terms of the changing of the Asia Pacific business, then weathering the pandemic.
while I think there are a couple of headwinds left maybe in terms of the higher inflation still and maybe the unfavorable currency exchange at this point, but would you say broadly that in terms of headwinds on the business that travel's fundamentals are as strong as they've been in quite some time?
Well, you saw we had a very good quarter in Q4. It was our best quarter in the last three years. We're going to have a good quarter again in Q1. And so we're very optimistic about 2023. We see that the trends that we are seeing among consumers are helping our business. We see that the trends of what we're seeing in the industry with more capacity, and we're seeing that the trends that we're seeing in the industry are helping our business. And so we're very optimistic about 2023. We see that the trends of what we're seeing in the industry with more capacity, and we're seeing that the trends of what we're seeing
margins that we have seen in Q4 and probably do even better.
Great. Thanks for taking the questions and congratulations on the results.
Thank you. I will now turn the call back over to Mr. Holger Bartel.
Thanks everyone for listening in and we look forward to speaking with you soon again 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.