Q2 2023 Travelzoo Earnings Call

Go ahead Jay.

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Please go ahead Sir.

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Thank you.

Rich.

Hello, everyone.

Welcome to the travel <unk> second quarter 2023 financial results Conference call. 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.

Company, we'd 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 1095 actual results could vary materially from that.

As contained in the forward looking statements factors that could cause actual results to differ materially from those in forward. Looking statements are described in the company's forms 10-K, and 10-Q and other SEC filings.

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 today, an archived recording of this conference call will be made available on the troubled Xu Investor Relations website at travel do Dot com forward Slash IR now.

Now it is my pleasure to turn the floor over to travels as global CEO , Although holder Bartel. Its finance director early June Chi and its general manager travels do meta avina, although Wally as you will start with an overview of our second quarter 2023 financial results.

Thank you operator.

Joining us today.

Please refer to the management presentation to follow along.

With our prepared remarks, the presentation in PDF format is available on our Investor Relations website.

Dot com.

I R.

Let's begin with slide number three.

Our consolidated Q2 revenue was 21 1 million.

Up 19% from 17.7 million in the previous year.

In constant currency revenue was 21 point too.

Which is an increase of 20% year over year.

Operating income, which we as management call operating profit increased 84% year over year.

Q2, operating profit was $3 3 million.

Or 15% of revenues up from one 8 million in the prior year.

As of June 32023.

Had 38 million and duplicate it memory.

237 million as of June 32022.

Slide four shows that revenue growth exaggerated.

Particularly in Europe , and at Jack's Flight club.

Year over year growth rates were higher this quarter in all business segments.

Compared to growth in the previous year.

On slide five we go into more detail about the revenues and operating profits of our two largest business segments, North America and Europe .

North America segment revenue increased to one 8 million from $12 4 million to 14.1 night.

Their operating profit in North America, with three 8 million in Q2.

Third to an operating profit of $3 3 million a year ago.

Europe segment revenue increased one 5 million from $4 4 million to five 9 million.

Europe had an operating loss of 239000 in Q2 compared to an operating loss of one 5 million in the prior year.

On slide six you can see that our operating margin reached 15% in Q2 up from 10% in the same period last year.

The operating margin of 15% in Q2 2023, it's much higher than before the pandemic.

For the pandemic travel reported.

Margin was much lower because of losses from our Asia Pacific business segment.

In March 'twenty, 'twenty publicly we decided to make Asia Pacific a licensing business going forward now.

<unk> operating margin shows the true profitability of travel do in North America and Europe .

Slide seven shows that in North America operating margin reached 27% for Q2.

On slide eight.

Provided information on non-GAAP operating profit, we believe better explain how it evaluates performance.

Q2, 2023, non-GAAP operating profit was $4 1 million compared to a non-GAAP operating profit of $2 6 million in the prior year.

Slide nine provides more information about the items that are excluded in the calculation of non-GAAP operating profit.

Please turn to slide 10.

June 32023, consolidated cash cash equivalents and the restricted cash was $22 million.

Our cash balance remained unchanged.

Payables decreased by 4.0 Meli.

Slides 11, and 12 detail of our revenues by business segment.

Pardon the interruption the speaker has disconnected.

Yeah.

Okay.

Okay.

Hi can continue.

Slides 11, and 12 details our revenue by business segment.

America business segment, so our year over year revenue increase of $1 8 million.

Turning to slide 12.

Europe business segment, so our year over year revenue increase of $1 6 million.

Slide 13 shows how revenue as compared to operating expenses.

Most of the company's operating expenses, except for marketing our fixed in the short term or mid term.

We believe we can keep fixed costs relatively low in the foreseeable future.

While revenues are expected to grow.

For Q3 2023, we currently expect growth in revenue and growth in operating income to continue.

Over a year.

Let's turn to next slide year over year revenue growth accelerated from the first quarter to this quarter.

We will continue to leverage <unk> global reach.

<unk> brand.

Our strong relationships with top travel suppliers to negotiate more exclusive offers for travelers of members.

With more than 30 million members 8 million mobile App users and 4 million social media followers travels with loved by traveling so which adds to our affluent.

And opened two new experiences.

Slide 14 provides more information about travelers who members.

87% say they are open to new destinations and travel ideas.

Travel travelers who members are indeed.

Travel enthusiasts.

Slide 16 provides an overview of what management and our global team are focused on.

We wanted to reach and surpass pre pandemic number of members and accelerate revenue growth.

Utilize higher operating margins to significantly increase EPS.

Broad checks slight drop profitable subscription revenue and.

And develop travelers who met with discipline.

At this point I'd like to turn it over to arena.

Hello, everyone.

John to slide 19 for an update on the new travel grew metal service.

We opened four founding membership in Q2 2023.

<unk> site is metal Dr traveled blue Dot com.

We are accepting 1 million founding member founding members.

Early adopters of travel to motto, who will play a pivotal role in shaping the future of travel in the Metro markets.

Founding membership is a one time fee of $20.

Each founding member will be entitled to one of the World.

First <unk>.

Emotionally driven travel companion NFC Raman Interactive gallery.

Nor do travel companions are the same.

When the founding members will also receive an exclusive first year annual subscription rate.

Sneak peek on the upcoming data meta was travel experiences.

Please turn to slide 'twenty through 'twenty three.

Is not short of the founding members only interact with Yodlee.

On Slide 24, you can get a glimpse of the travel companion.

I'm handing over to the operator for questions for holder Alicia anatomy.

Thank you the floor is now open for questions.

Have a question. Please press the star key followed by the number one on your Touchtone phone at this time once again, if you have a question ladies and gentlemen that is the star key followed by the number one on your Touchtone phone. Please.

Please hold while we poll for questions.

And we'll take our first quick question from Jim Goss with Barrington Research. Your line is now open.

Great I appreciate the opportunity.

One thing I'm very focused on is the cost structure.

That was.

A key advantage in.

<unk> you had.

Coming out of Covid to maybe right size the cost structure I wanted to ask is if you think it's where it needs to be right now or do you think at all.

Be able to rise.

Kris in certain areas.

How things match up between U S and Europe .

Hi, Jamie.

We said earlier.

We believe that our fixed costs are relatively stable.

He will remain stable for the next few quarters.

Please so.

We have some opportunity to decide.

How much we would like to spend on marketing this quarter we had.

Great opportunities.

The U K and for Chegg slide clock.

You spend a little bit more on member acquisition.

Yes.

That's why of course, a little bit up versus the previous quarter, but in general we believe.

They will remain at their current level for the foreseeable future.

Okay.

<unk>.

A couple of things one is I was wondering.

What you might think of in terms of.

Margin profile.

Overall, our U S versus Europe .

The.

We've been able to take advantage of leveraging our fixed cost structure.

Where you think you might be able to rise to at whatever you think of as a maturity level.

And maybe even how long it might take to get there.

We believe that for the company overall operating margins can go higher.

You see that the operating margin in North America.

Has been around 30%.

Europe is far behind that but as Europe is catching up the operating margins in Europe .

We expect them to increase as well.

We believe that.

We can for the company as a whole.

Can reach overall similar levels of what we are seeing in North America.

Okay.

One last grouping.

Okay.

Jack's flight club seemed like it was a great opportunity the ROI hasnt been so great to this client I am wondering what you. What's your objective is might be with <unk>.

Thanks, Mike.

And if you feel there are any subscription opportunities.

Been able to do.

Android with Jack's flight club that you might apply.

To the.

So the overall operations.

Our business.

Yes.

We are happy with Chegg slight drop right now.

Finally, after coming out of <unk> refinery.

Members, increasing in fact paying subscribers were up 30% you don't see that yet into revenue because revenue gets reported.

Delete.

And so we're quite optimistic about Jack's flight club the contributions that can make to the company overall.

And then in terms of.

Using a subscription model in the core business is that.

Phil lap the best idea.

Yes, it's something we are looking at for sure.

We are doing some tests.

At the appropriate time, we will update you with.

Investors about what we are planning to do.

Alright, thanks, very much ill give up so far appreciate it sure. Thanks, Jim. Thanks Bye. Thank you next we'll go to Ed Woo with <unk> capital. Your line is now open.

Yes. Thank you very much for taking my question Theres been a lot of buzz you've been in the travel industry about AI and machine learning.

<unk> doing anything in that area.

Hi, it's actually something that we've been looking at for quite a while before it even became such a password recently, yes.

Yes, we can detail.

Initiatives underway to leverage AI in <unk>.

Couple of areas of our business.

Great is there anything you could talk about or is it something that youre going to wait until the time is right to discuss.

It's the second we would like to wait until it's time to discuss also we don't really would lie we don't read according to inform our.

Competitors and address what we are planning to do.

Great well, it's glad to hear that you guys are also involved in this.

And then my next question is on meta you said that the launch has happened.

In the second quarter, and you've got 1 million members with congratulations.

Is that on track with what you guys are expecting and do you guys have.

Our expectations for what number youll be maybe by the end of this year.

Yes.

Thanks, Hello, guys Hi.

So yes, I've been mentioning in the previous call. We are burgled traveled with Martha in phases.

Very disciplined manner. So we did launch our founding membership fees, which you can see medical travel Green Dot com in Q2, and while we cannot disclose any data yet because I didn't get it.

Imagine we are trying to be the smoothness of the data is confidential.

We are highly encouraged by the <unk>.

Results.

I do look forward to sharing that with you.

Great well, thanks for answering my questions and I wish you guys. Good luck. Thank you.

Next we'll go to Steve Silver with Argus Research. Your line is now open.

Thanks, operator, and thanks for taking the question.

First I wanted congratulate you guys on the continued progress on the balance sheet, it's nice to see that the merchant payables continue to come down at a significant rate while the cash is being maintained.

I guess my main question is just how youre thinking about.

The recovery in the business, particularly in Europe .

The fact that you've mentioned on the last few calls that Europe is lagging behind North America in terms of.

The operating margin.

Getting in each place, but yet the company was able to.

Issue.

New share repurchase plan, so just trying to get a little bit more color in terms of what youre seeing out of Europe in terms of that gives you the confidence that the operating margin will continue to recover.

I guess, just that way supporting the share repurchase plans.

Yes, great. Steve we are indeed, very happy with the improvements in the balance sheet. Thanks for noticing that.

If you compare our balance sheet to one year ago.

Improved.

Very much indeed.

And we were able to do so because we executed exactly what we've been seeing for the last year, which is what we wanted to.

Accelerated revenue growth you are going to increase operating margins. We wanted to increase EPS, we wanted to improve our balance sheet, we want to grow with Jack's flight club profitable subscription revenue and we are seeing all of this happening so we're actually quite happy.

We are also very pleased with the second quarter.

Revenue growth overall.

Hess is higher than Q1, it has accelerated over what we saw last year or so.

We have very good momentum coming out of the pandemic.

When it comes to Europe .

Yeah.

One should not look at just the absolute numbers, yes. The revenue is the same in Q2, where it was in Q1, but the growth rate year over year is now 35%. So finally Europe is also getting that momentum and it.

As we said with a delay we expect it will also reach.

Pre pandemic levels.

As we continue on this course so.

We are quite pleased with it and then Europe .

What was your third question was related to the share repurchase.

In terms of how the recovery will get there. Thanks.

Yes, the recovery is fully on track the profitability of the company is higher than it has ever been.

We are generating lots of cash and that gave us an opportunity to repurchase already last quarter, a fairly large amount of Ceos and.

We also see behalf that opportunity going forward to repurchase mushy aspects, why we announced a share repurchase program yesterday.

Great. Thank you so much for the color and congratulations again.

Okay next we'll go to Patrick and Mccann with Noble capital markets. Your line is open.

Hi, This is Pat for Mike Kopinski up My first question is if there is any particular.

Impact from economic weakness as it relates to consumers travel budgets, there might be the appetite for travel but.

Our consumers, reducing how much they're spending have you seen any anything on that.

Any impacts to the business.

I guess I'll leave it at that for my first question.

Yes, we are seeing we are indeed, seeing a trend that demand, particularly for hotels as well.

<unk>.

You probably hear that.

Lines.

<unk> are quite full.

That's also a result of significantly reduced capacity.

But what we are hearing from hotels in both North America, and Europe , and particularly on the higher end is that.

You can see are receiving this year.

Are not as strong as what they had last year the start of the year was quite strong.

And so they all expect that business would be.

Very very good again, even better than in the summer of 2022.

But that Hasnt testament to the level of expectations.

This is good for us because more hotels and other travel providers are coming to us.

Work with us to create.

These specific offers that are motivating our 30 million members to take additional trips go someplace, where they didn't plan too.

Travelling more so.

Yes.

We see this trend.

Strong this trend of very very strong travel demand coming out of the pandemic.

See it weakening in.

As I said, it's actually good for us I believe in the second half of the year we.

We will have even better opportunities to create exclusive offers for our members.

Sure.

And kind of piggybacking on that.

Or are people booking.

Any closer to the dates as far as closer further away from the travel dates has that has that trend has that been trending one direction or another.

Demand has weakened.

Well, we are not an online travel agent so we.

We are not the booking side. However, we of course yield from our partners.

We are seeing.

What's happened this year is that.

People were more comfortable to book in advance Thats why I earlier said looking.

At the beginning of the year for summer travel look quite strong.

Different from last year.

Last year people were booking more last minute so.

What we are hearing is that.

Looking window is going back to what it was before the pandemic. So in general we see a lot of normalization.

Yeah.

Got you. Thank you.

And then I also just wanted to touch on.

Meta travel do matter quickly is are there any milestones we can look for going forward.

Any anything we can kind of any anything we can look for.

Okay.

So I conclude.

So we.

At this point.

Mentioned, we did launch from membership fees, and we do have milestone milestones, which fracking.

Again, it's a little too early to disclose especially given you're attempting to be the first mover, but as and when we approach those milestones we will update everyone.

Okay.

Thank you and congrats on the solid quarter.

So look pet we are very excited to be in this industry.

A great industry to be in because what <unk>.

Make sure to do you believe that.

It is essential that they would like to leave home and they wanted to travelers. So.

I think the interest in people to travel.

It's higher than it ever was before the pandemic yet of course the inflation.

Potential economic weakness is putting stress on peoples persists and it also creates openings in the travel industry, where we come in.

And we help to travel companies to drive demand into areas, where there wasn't as demand.

And the.

Also or at periods when there is less demand over this period.

In this way.

Creating incredible all first of all remember that get them to travel more and really fulfill that desire to get away.

Learn more about new culture. So we.

We're in a good spot and we're very excited.

It's a good place to be here. Thank.

Thank you very much.

Excellent. Thank you.

And I show, we have no further questions at this time I'll now turn the call back over to Mr. Holder Bartel for any additional or closing remarks.

Sure Dear investors. So thank you all for your time and support.

We look forward to speaking with you 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.

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