Q2 2024 Travelzoo Earnings Call
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Operator: Hello everyone. Welcome to the Travelzoo second quarter 2024 financial results conference call. All participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation. This call is being recorded.
Hello, everyone and welcome to the <unk>.
<unk> second quarter 2024 financial results conference call.
Discipline have been placed in a in a listen only mode and the floor will be opened for questions. Following the presentation.
Today's call is being recorded.
Unnamed Speaker: The company would like to remind you that all statements made during the 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. However, 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 Forms 10-K and 10-Q and other SEC filings. However, 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.
The company would like to remind you that all statements made during the 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.
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 S. E C filing.
Unless required by law the company undertakes no obligation to update publicly any forward looking statement, whether as a result of new information future events or otherwise.
Operator: 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 company's investor relations website at Travelzoo.com forward slash IR. It is now my pleasure to turn the floor over to Travelzoo Global CEO, Holger Bartel, and its Finance Director, Lijun Qi. Lijun, we'll start with an overview. Thank you.
Please refer to the to the company's website for important information, including the Companys earnings press release issued earlier today and.
An archived recording of this conference call will be made available on the company's Investor Relations website at travel do dotcom forward Slash I R.
It is now my pleasure to turn the floor over to travel do global CEO Holger Bartel and its five Nan finance director lead Gen.
<unk> will start with an overview.
Lijun Qi: Thank you, operator, and welcome to those of you joining us today. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PVS format is available on our investor relations site at travelzoo.com slash IR. Let's begin with slide number four.
Thank you operator and welcome to those of you joining us today. Please.
Please refer to the management presentation to follow along with our prepared remarks.
Indentation in P. B S formatted available on our Investor Relations site, a troubled blue Dot com slash IR.
Let's begin with slide number four.
Lijun Qi: Travelzoo's consolidated Q2 revenue was $21.1 million, consistent with the prior year. However, in constant currencies, revenue was $21.2 million, up from $21.1 million year-over-year. Operating income, which management calls operating profit, increased 23% year over year due to operating profit was $4.0 million or 19% of revenue, up from $3.3 million in the prior year. As of June 30, 2024, we had 30.8 million unduplicated members, consistent with June 30, 2023.
<unk> consolidated Q2 revenue was 21 1 million.
Insistent with the prior year in constant currency revenue was 21.2 million up from 21.1 million year over year.
Operating income, which way at management Nichol operating profit increased 23% year over year.
Due to operating profit of woods, warplane zero million or 19% of revenue up from 3.3 million in the prior year.
As of June 32024, we had 30.8 million until predicated members consistent with June 32023.
Lijun Qi: Slide 5 shows that revenue remained consistent in our North America segment and increased in our Europe segment. Operating profit Turned positive in Europe. On slide six, we break down our categories of revenues, advertising, membership fees, and others. Advertising revenue was $20.0 million for Q2 2024, consistent year-over-year. Revenue from membership fees increased to $1.2 million. We expect this revenue to grow substantially in 2025 for the following reasons. At the beginning of 2024, we introduced a membership fee. Those who are already members at the time are exempt from the fee during 2024 but will have to pay it in 2025. We call this group legacy members, and they represent over 95 percent of current members.
Slide five shows that revenue remained consistent in our North America segment and increase in our Europe segment.
Operating profit of 10 positive in Europe.
All right Steve.
We breakdown our categories of revenues advertising membership fees and other.
Advertising revenue was 20.0 million for Q2 2024.
Consistent year over year.
Revenue from membership fees increased to 1.2 million.
We expected this revenue to grow substantially in 2025, Florida folding reason.
At the beginning of 'twenty 'twenty four we introduced a membership fee.
Those who already members at the time are exempt from the fee during 2024, but I have to pay in 2025, we call. This group legacy members.
And then day represent over 95% of current members.
Lijun Qi: Slide 7 shows an example of membership fee revenue recognition. Revenue from membership fees is recognized readily over the period of the subscription. Member acquisition calls, on the other hand, are recognized in full at the time of the event.
Slide seven shows an example of a membership fee revenue recognition.
Revenue from membership fee is recognized ratably over the period of the subscription.
Member acquisition cost on the other hand I recognize in full at the time of the expense.
Lijun Qi: On slide 8, you can see that our gap orbiting margin was 19% in Q2 2024 compared to 15% a year ago. Slide 9 shows that in North America, the gap operating margin remained high at 26% for Q2 2024. On slide 10, we provide information on non-GAAP operating profit as we believe it better explains how Travelzoo's management evaluates financial performance. In Q2 2024, non-GAAP operating profit was $4.8 million. That's 23% of revenue compared to a non-GAAP operating profit of $4.0 million in the prior year period. Slide 11 provides information about the items that are excluded in the calculation of non-GAAP operating profits. Please tend to site 12.
On slide eight you can see that our GAAP operating margin was 19% in Q2 2024 compared to 15% a year ago.
Slide nine shows that in North America. The GAAP operating margin remained high at 26% for Q2 'twenty 'twenty four.
All right pin we provide information on non-GAAP operating profit as we believe it better explain how troubled youth management evaluate financial performance.
Q2, 2024, non-GAAP operating profit was 4.8 million.
At 23% of revenue compared to non-GAAP operating profit of 4.0 money in the prior year period.
Slide 11 provide information about the items that are excluded in the calculation of non-GAAP operating profit.
Please turn to slide 12.
Lijun Qi: We maintained a solid cash position even after repurchasing 800,000 of the company's outstanding common stock. As of June 30, 2024, consolidated cash, cash equivalents, and restricted cash was $13.2 million. Slide 13 shows how revenues compare to operating expenses. Most of the company's operating expenses, except for marketing, are relatively fixed in the short to mid-term. We believe we can keep fixed costs relatively low in the foreseeable future.
We maintained a solid cash position, even after repurchasing 800000 of the company's outstanding common stock.
As of June 32024, consolidated cash cash equivalents and restricted cash was 13.2 million.
Slide 13 shows how revenues compared to operating expenses.
Most of the companies operating blunted the acceptable marketing are relatively fixed in the short to mid term.
We believe we can keep speaks costs relatively low in the foreseeable future.
Lijun Qi: Higher revenues would just increase operating margins. For Q3 2024, we expect a growth in revenue year-over-year, albeit at a slower pace than in 2023. However, there could be unexpected fluctuations. We also expect higher profitability year over year. For 2025, we expect a substantial growth in revenue as a result of additional revenue from membership fees. Now I turn the discussion over to Holger.
Higher revenues would just increase operating margin.
So Q3, 'twenty 'twenty four we expect a growth in revenue year over year, albeit at a slower pace than in 2023.
However, there could it be unexpected fluctuation.
We also expect a for Q3 2020 for higher profitability year over year.
For 2025, we expect a substantial growth in revenue as a result of additional revenue from membership fees.
Now I turn the discussion over to a holder.
Thank you Alicia wound.
Holger Bartel: We will continue to leverage Travelzoo's global reach, trusted brand, and strong relationships with top travel suppliers to negotiate more exclusive offers for our members, with more than 30 million members, 8 million mobile app users, and 4 million social media followers.
We will continue to leverage travels with global reach.
<unk> trusted brand and strong relationships with top travel suppliers to negotiate more exclusive offers for our members.
With more than 30 million members eight.
8 million mobile App users and 4 million social media followers travels with love by travel enthusiasts who are affluent.
Holger Bartel: Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. Slide 15 provides more information about Travelzoo members. 91% say they are open to new destinations and travel ideas. We are the Club of Travel Enthusiasts. Turning to slide 17, it provides an overview of management's focus.
Dave and open to new experiences.
Slide 15 provides more information about travelers who members.
91% CDI open to new destinations and travel ideas.
We are the club of travel enthusiasts.
Turning to slide seven turning to slide 17 provides an overview of management's focus.
Holger Bartel: We are working to convert a large number of legacy members into paying members as of January 1st, 2025. Add new benefits to make paid membership even more valuable, retain and grow our profitable advertising business from the popular top 20 products, and utilize higher operating margins to increase EPS.
We are working to convert a large number of legacy members into paying members as of January one 2025.
And new benefits to make paid membership even more valuable.
Retain and grow our profitable advertising business from the popular top 20 product.
Utilize higher operating margins to increase EPS.
Broad checks flight clubs profitable subscription revenue.
Holger Bartel: Grow Check, FlyClub, Profitable Subscription Revenue, and develop Travelzoo Meta with discipline. Now, I'd like to speak about Travelzoo Meta. We are working on the production of the first Metaverse travel experiences, which will be browser-enabled. And, as stated in previous earnings calls, we are conscious of developing Travelzoo Meta in a financially disciplined way. We will provide additional updates in due time. I'm now handing over to the operator for questions for Holger, Lijun, and myself.
And develop traveled through meda with discipline.
Now I'd like to speak about travelers, who matter we are working on the production of the first met adverse travel experiences.
They will be proud as they enabled.
And as stated in previous earnings calls, we are conscious of developing traveled through meta.
Financially disciplined way.
We will provide additional updates in due time.
I'm now handing over to the operator for questions for Hoeger visual and me.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. We ask that you limit yourself to one question. Your first question comes from the line of Michael Kupinski with Noble Capital Markets. Please go ahead. Thank you.
Thank you we will now begin the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and.
And if you would like to withdraw that question again press star one.
You eliminate we ask that you limit yourself to one question.
Your first question comes from the line of Michael Kaplinsky with Noble capital markets. Please go ahead.
Michael A. Kupinski: Thank you, and thank you for taking the questions. I appreciate it.
Thank you and thank you for taking my questions I appreciate it.
Lijun Qi: Just a quick question here regarding your conversion to subscription. Can you just kind give us some metrics? I know you were talking about substantial growth in 2025, and I was wondering if you could give us some metrics around what your expectations might be, given that you've been testing different marketing events and things like that to gain subscriptions. I was wondering if you could give us some metrics around your thoughts about 2025 and then how you anticipate the conversion to subscription might affect your advertising and then margins as well.
A quick question here regarding your converging too.
Subscription can you just kind of give us some metrics I know you were talking about substantial growth in 2025, and I was wondering if you could give us some metrics around what your expectations might be given that you've been testing different.
No.
Different marketing events and things like that too.
To gain subscription and was wondering if you can give us some metrics around your thoughts of 2025, and then how you anticipate the conversion to subscription.
Your advertising and then margins as well.
Lijun Qi: Hi Michael. So, on the first question, we are not making any estimates for how many members will convert in 2025. The reason why we are speaking about substantial revenue growth is that you can calculate it yourself for every 100,000 members that convert at a membership fee which is annually $40. That represents an incremental $4 million in annual revenue. That's just 100,000 of the 30 million converting. Now... As I mentioned at the end, when I spoke about management's focus, we have a plan for making the transition in a way that it will not affect our advertising business. We are looking to maintain advertising in our popular top 20. We will share that plan later in full.
Hi, Michael.
So on the first question we are not.
So we are not making any estimates for how many members will convert in 2025.
The reason why we are speaking about substantial revenue growth.
If you can calculated yourself for every 100000 members that convert at the membership fee, which is annually $40.
That reflects an incremental $4 million in annual revenue so.
That's just 100000 of the 30 million converting now.
As I mentioned.
At the end when I spoke about management's focus.
We have a plan for making to transition in a way that it will not affect our advertising business.
We are looking to maintain advertising in our popular top 20.
We will share that plan later in <unk>.
Operator: Your next question comes from the line of James Goss with Barrington Research. Please go ahead.
Your next question comes from the line of James Goss with Barrington Research. Please go ahead.
Okay.
Holger Bartel: Thanks. Just to clarify, Holger, so the top 20 is not part of the paid-for program, and that, can I assume, is the source of a lot of the ad dollar?
Thanks, just to clarify hilger.
The top 20 is not part of the.
The paid for our program.
Can I assume that as a source of a lot of the AD dollars.
Hi, Jim.
Holger Bartel: Top20 is the product with which Travelzoo generates the most advertising revenue, and we have over 30 million subscribers to Top20. And as I mentioned earlier, yes, Top20 is, of course, part of your membership, but we are also looking to retain the advertising business in Top20.
Top 20 is the product with which travelers who generates indeed, the most advertising revenue and we have over 30 million subscribers to the top 20 and as I mentioned earlier.
Yes top 20 is of course part of your membership, but we are also looking to retain.
The advertising business in the top 20.
Operator: Your next question comes from the line of Steve Silver with Argus Research. Please go ahead.
Your next question comes from the line of Steve Silver with Argus Research. Please go ahead.
Steven Silver: Good morning, and thanks for taking the question and congratulations on the earnings leverage both in operating margin expansion as well as the reduction in the number of shares outstanding. I guess my question is given the current cash balance, which even after the repurchases is still within one quarter of being net positive when you factor in the merchant payables, I'm just curious as to whether there's any updated thinking in terms of the use of cash or the needed use of cash for investments in new growth initiatives given the fact that, really, marketing is the only non-fixed component of expenses over the near term.
Thank you good morning, and thanks for taking the question and congratulations on the earnings leverage both in operating margin expansion as well as the reduction in the number of shares outstanding.
I guess my question is given the current cash balance.
With even after the repurchases is still within one quarter of being net positive when you factor in the merchant payable I'm just curious as to whether there's any updated thinking in terms of the use of cash or the needed use of cash.
For investments in new growth initiatives.
Given the fact that really marketing is the only non fixed component of expenses over the near term. Thanks.
Holger Bartel: Steve, when it comes to cash, we always very carefully think about where we best use it. Do we invest it in marketing? Do we invest it in product? Do we invest it in acquisitions? Do we invest it in share purchases? So it's a very deliberate decision we make. We have quite a few opportunities and related to our expectation for 2025, when legacy members start having to pay a membership fee. We also expect, as I calculated earlier, that that will quite substantially improve our balance sheet and also increase our cash position.
Hi, Steve when it comes to cash we always very carefully think about where we best use it to we invested in marketing do we divested in product we invested in acquisitions to weakness did in share repurchases.
So it's a very deliberate decision we make we have quite a few opportunities in.
Related to our expectation for 2025.
N.
Legacy members stopped.
Having to pay a membership fee.
We also expect.
Calculated earlier, we also expect that that will quite.
Essentially improve.
Our balance sheet and also increase our cash position.
Operator: Your next question comes from the line of Ed Woo with Ascendant Capital. Please go ahead. Yes.
Your next question comes from the line of Ed Woo with <unk> capital. Please go ahead.
Edward Moon Woo: Yeah, thank you. Can you talk about how the summer travel season is progressing and what is your outlook for the rest of the year in terms of how the travel industry is faring? Thank you.
Yes. Thank you can you to I'll talk about how the summer travel season is progressing and what is your outlook for into the rest of the year in terms of how the travel season, our industry outlook is thank you.
Okay.
Holger Bartel: Hi Ed. In general, we are seeing in travel and we're hearing from our partners a similar story that lots of other companies are hearing. Consumers are becoming more value conscious. They don't want cheap. They don't want overpriced in the last couple of years. The travel industry has used the opportunity of the pent-up demand to increase prices quite tremendously for airline tickets and hotel rooms. From what we are hearing, that is coming to an end this year, or at least there's expectations that it could come to an end this year because consumers are looking for more value.
Hi, Ed in General we are seeing in travel and we're hearing from our partners is similar story that lots of other companies are hearing.
Consumers are becoming more value conscious.
They don't want cheap.
Don't want overpriced.
I want to pay a fair price for what is providing excellent value that's exactly what travelers who dos and there is no difference between the U S and came at the UK, Germany and the rest of Europe, we really see the same trend in all the markets and.
In the last couple of years to travel industry has used the opportunity.
Of the pent up demand to increase prices quite tremendously for airline tickets hotel rooms.
From what we are hearing that is coming to an end this year or at least there's expectations that it could come to an end this year because consumers are looking for more value.
Holger Bartel: And that's exactly what Travelzoo is doing. And with our move to a paid membership, we are creating a closed user group. And within that closed user group, this is something that's important for travel suppliers because they would like to offer special deals, discounts, and prices, not publicly, but to a limited group of people. And that's why we are hearing the model of moving to a closed user group is quite attractive for travel suppliers.
And that's exactly what travelers, who is doing and with our move to a paid membership we are creating a closed user group and within that closed user group.
Is something that's important for travel suppliers, because they would like to offer special deals discounts prices not publically, but to a limited group of people and depths y.
Our hearing the model of moving to a closed user group is quite attractive for travel suppliers.
Operator: Your next question comes from the line of James Goss. With Barrington Research, please go ahead.
Your next question comes from the line of James Goss.
With Barrington Research. Please go ahead.
James Charles Goss: Hi. One more thing. I was wondering about the new initiatives or the new benefits to the paid membership you referred to. Could you give an example or two of what sort of things you have in mind that might appeal to new members?
Hi, one more thing I was wondering.
About the new initiatives or the new benefits to the paid membership you referred to could you give the.
An example, or two of what sort of things you have among that might appeal to new members.
Holger Bartel: Hi Jim, again, you will hear about them over the next few months. It's not something that we would like to disclose here before we actually share it with our members. But we have quite a few things in the works that I think our members will truly love and enjoy for the rest of this year and then in 2025 and beyond.
Hi, Jim again, you will hear about them over the next few months, it's not something that we would like to disclose previously year before we actually shared with our members, but we have quite a few things in the work that I think our members will truly love and enjoy it for the rest of this year and then in 2025.
Beyond.
Holger Bartel: And that concludes our question and answer session. I will now turn the call back over to Holger Bartel for closing remarks.
And that concludes our question and answer session I will now turn the call back over to <unk> for closing remarks.
Holger Bartel: Thank you, ladies and gentlemen. This concludes our teleconference today. You may disconnect your lines at any time, and we look forward to speaking with you again next quarter. Thank you for your time and support.
Thank you ladies and gentlemen, this concludes our teleconference today.
You may disconnect your lines at any time, and we look forward to speaking with you again next quarter.
Thank you for your time and support.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
And we are fine.
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