Travelzoo (TZOO) 2016 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Travelzoo Third Quarter 2016 Financial Results Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. Today's call is being recorded. Before introducing you to your host and being given the company's presentation, the company would like to remind you that all statements made during this conference call is presented in the company's slides that are not statements of historical facts, constitute forward-looking statements, and are made pursuant to the safe harbor provisions of 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 10K and 10Q, and other previous filings with the SEC. Unless required by law, the company undertakes no obligation to update publically any forward-looking statements whether as a result of new information, future events, or otherwise.

Please note that this call is being webcast from the company's investor relations website at www.travelzoo.com/earnings. Please refer to the company's website for important information, including the company's earnings press release, issued earlier this morning, along with the slides that accompany today's prepared remarks. An archived recording of this conference call will be available on the Travelzoo investor relations website at www.Travelzoo.com/IR beginning approximately 90 minutes after the call has completed.

Now, it is my pleasure to turn the floor over to your host, Holger Bartel, Travelzoo's Chairman and Global CEO. Sir, you may begin.

Thank you, Operator. Good morning and thank you for joining us for today's Travelzoo Third Quarter 2016 Financial Results Conference Call. I am Holger Bartel, Chairman and Global CEO of Travelzoo. And joining me today is Glen Ceremony, the company's Chief Financial Officer. Glen will walk you through today's format.

Thank you, Holger, and everyone for joining us today. For the format of today's call, I will review our third quarter financial results and then Holger will provide an update on our strategy.

Thereafter we will open the call for our question and answer session. Now, please open our management presentation, which is available on our investor relations website at www.travelzoo.com/earnings, to follow along with our prepared remarks.

Slide 3 provides the key financial highlights for the quarter. Our revenue for the quarter was $30.4 million, down 10% year over year, or down by 7% in constant currencies. Our non-GAAP earnings per share this quarter was $0.12, which is $0.09 higher than the prior year period.

Our members grew to 29.1 million, and our social media followers and mobile app downloads continue to increase. Slide 4 highlights our revenue by segment. Revenue in North America was $19.1 million, representing a year over year decrease of 8%. Revenue in Europe was $8.8 million, representing a year over year constant currency decrease of 5%. The Asia Pacific revenue was $2.6 million, representing a year over year constant currency decrease of 10%.

The next few slides cover further detail of our revenue for each of our three segments. Slide 5 shows North America year over year revenue decreased by $1.6 million. $600,000 was due to lower voucher sales for local, as we have focused our business on the most attractive markets, and $500,000 was due to travel, primarily due to the elimination of unprofitable business activities offset by growth in revenue from hotels. The remaining $500,000 of the decline was due to lower search revenues from our pull back on the search traffic acquisition spend.

Turning to slide 6, there was a $948,000 negative FX impact on Europe revenue. Europe year over year revenue on a constant currency basis shows that overall Europe revenues decreased by 5%. The constant currency decrease of approximately $500,000 was primarily due to lower search revenue from less search traffic acquisition spend.

On slide 7, Asia Pacific year over year revenue decreased by approximately $300,000 as we made changes to our sales organizations in various countries and had fewer staff. Slide 8 provides a breakdown of our operating income. We had $2.2 million in overall operating income. North America generated $1.4 million, and Europe generated $1.6 million of operating income, which both more than doubled year over year.

Asia Pacific recorded an operating loss of $800,000, which increased year over year due to our planned increased member acquisition spend. Despite lower revenue, net income increased year over year, as we operated smarter.

Slide 9 shows the cost of revenue and operating margin. The cost of revenue as a percent of revenue was down year over year due to lower syndication revenue and voucher sales. Our operating margin percentage increased year over year as we gained more operating inefficiencies.

Slide 10 demonstrates our progress on managing costs. Operating expenses in both North America and Europe declined year over year. The increase in Asia Pacific's year over year cost was due to the planned increase in member acquisition spend.

Slide 11 shows that our productivity was up year over year with a sequential decline due to seasonally lower revenues. Moving on to slide 12, DSO was relatively flat year over year, as expected. We repurchased $582,000 of our stock, exiting the quarter with a solid cash position of $24.8 million, of which $13.5 million was held outside the US.

Turning to slide 13, in summary the majority of our revenue declines were driven by planned reductions and local search and syndication revenues, as well as an increasing negative FX impact. We saw improvements in profitability as our operating costs have come down, driven by our continued focus on operating smarter and eliminating business activities that were not profitable, and we exited the quarter with a solid cash position after continuing to repurchase stock.

Looking forward to our fourth quarter of 2016, we expect the following --we expect the recent year over year percentage rate declines in revenue that we have experienced over the last several quarters to persist. This is due to the transition of our products that is still underway, including declines in getaways, local and search, as well as elimination of certain unprofitable travel business activities.

Overall, we expect the fourth quarter to be seasonally lower than the other quarters of the fiscal year. We expect the year over year percentage rate of declines in total revenue to be larger than Q3 due to the expected increased negative FX impact on our European revenue, and due to an expected sequential decline in search revenue, estimated to be $1 million to $1.5 million, as we plan to reduce traffic acquisition spend as well as our new, responsive website is expected to shift revenues away from Super Search.

Holger will talk more about this in a moment. We expect to continue member acquisition spend at the increased levels of 2015. We plan to increase investments in our Asia Pacific segment, in particular in China, which will reduce year over year EPS by approximately $0.04. We expect an additional approximate $1 million of non-recurring expenses in Q4 were various initiatives, including, for example, annual meetings of all staff which will be held in North America and Europe during the fourth quarter.

In summary, given these transient investments we expect to generate lower revenue and operating income year over year and quarter over quarter; however, we are continuing to take steps to control non-investment area costs and are focused on increasing the productivity of our resources.

This concludes the financial summary of our third quarter of 2016. Now Holger will provide you an update on Travelzoo's strategy.

Please turn to slide 15. Our growth strategy continues to be built on two pillars. On one hand, we are looking to grow our audience. Together with our Asia Pacific business we now have over 29 million members worldwide, and that base continues to grow.

At the same time, we are working to enhance our products to serve our users better. We not only want them to receive deals from us by email and social media, but we also want to help them when they are actively searching for something specific, like a hotel room on a certain date. Revenues per member have been decreasing over the past three years as we streamlined and focused our business, but we believe that product enhancements should result, over time, in higher revenues per member.

Slide 16 highlights how our investment priorities are aligned with these two pillars of our strategy -- growth in our audience and improvements of our products. First, we continued our increased investment in acquisition of new members during the quarter. We added 750,000 new members and grew our already strong social media presence. We also increased our investment in Asia Pacific. New members are expected to benefit our business for years to come.

Second, we have been working to enhance our products to make them more mobile-friendly and easier to use so that members can search for specific deals faster and better. We launched a new responsive website to most of our US-based users which we plan to roll out around the globe in the next two quarters.

Third, we continue to enhance our hotel platform for date-specific hotel searches. We have doubled the number of hotels on the platform year over year and we communicate to our members more actively that they can find hotel deals when they need them.

As you can see on slide 17, our redesigned website puts the ability to search for all Travelzoo deals now front and center. Users can search not only by keyword, but they can more specifically come to us when they are looking for deals and offers for specific dates or periods. We are increasing the amount of content in categories beyond hotels, such as vacation packages, cruises, and local offers.

Hotel search is now fully integrated, but we are planning to replace Super Search with a better flight search experience. This will reduce Super Search revenue for flights and hotels on the new site. User and advertiser feedback on the functionality and the enhanced look and feel of the new site have been positive.

On slide 18, I would like to highlight our progress in the area of social media and marketing. We want to get the right deals to our members in whichever form is best for them, whether on their mobile phone or their social network. Social channels such as Facebook in North America and Europe, or Weibo in China, enable us to deliver our content beyond our traditional email delivery, and our members find it fun to share great deals they find from us with their friends.

Turning to slide 19, we are proud to be the quality leader in this business. Day after day, our staff selects, researches, negotiates, and validates the very best deals. Whether it's a vacation at the Four Seasons Hotel or dining as a mission style restaurant, our focus is always on quality.

Our test booking centers ensure that the deals we publish are real and valid, and not just bait and switch. We believe that our passionate focus on the very best deals, at the very best places, drive loyalty in the long run and position us well for long-term success.

Let me summarize, again, our management focus on slide 20 -- maintaining and even strengthening our quality content leadership is crucial. We intend to resume top-line growth in multiple ways. The products that make it equally simple for our members to search for offers as to receive deals that inspire them to take a trip. We also continue to grow the number of people users. We see a particularly promising opportunity in the large and fast-growing Chinese travel market, but as we invest on both fronts we would like to remain profitable.

This concludes our prepared remarks, now back to the Operator.

Thank you. The floor is now open for questions. If you do have a question, please press the star followed by the one on your touchtone telephone at this time. Once again, if you do have a question, ladies and gentlemen, that is star followed by one on your touchtone telephone. Please hold while we poll for questions, Thank you.

Our first question comes from Ed Woo (inaudible) from (inaudible)Capital. Your line is now open.

yeah, thank you for taking my question. Just a general question in terms of what you see in the travel industry right now, in terms of any impact from Brexit that you think will continue to next year? Then also just follow with how the North American and Asian travel markets are doing.

Hi, Ed, so in Europe, we indeed had the trend that we spoke about during our last call, that Europeans are avoiding certain travel destinations, it decreased a little bit throughout the quarter. And the Brexit actually was rather positive in terms of interest, of Travelocity going to the UK. So at the beginning of the third quarter we saw increased searches for travel to Britain and indeed, for Travelzoo members that we have outside of England. They were looking more for deals to their country.

In North America we haven't really seen any major new trends, except that I would say in certain cities like New York and other big cities. We start seeing more of an impact of Air B&B on the hotel business. Particularly in New York, there is now a lot of availability and we are seeing that hotel rates in the first quarter of 2017 look like they will be going down quite a bit.

Asia Pacific, the story also is the same. China, the Chinese travelers look to travel more and more abroad. And I think we really see that overall travel is becoming more and more global and this is something we want to pick up on going forward into 2017.

I don't feel we have leveraged enough the opportunity of our travels with members in various countries, and look for ideas in other countries, and that is something we are going to focus on more in the future.

That was great. You mentioned a little bit more and more impact in the US with Air B&B and possibly rates going down in the first quarter of next year. Do you think Air B&B will have a bigger impact, and I guess are you guys going to get more involved in that space? I know some of the bigger OTAs have moved, either they acquire (inaudible) Home Away or Priceline in the case of adding more - I guess alternative accommodations onto your website. Are you guys going to have a strategy for that?

Yes, we will. The impact of Air B&B and hotel is probably more a question for hotels. We just see that hotels come to us and want to promote more aggressive deals in the first quarter in places like New York, and that's good for us. In our past model of really promoting deals by email and now more with social media it's been difficult for us to promote very specific offers for a specific apartment, like Air B&B does. But of course we are thinking about how we can have our members benefit from that trend and we have some ideas in 2017 how we're going to do that. It's not something we have really been doing in the past.

Great, well thanks for answering my question and best of luck.

Thanks, Ed Woo.

Thank you. And again, if you would like to ask a question, ladies and gentlemen, that is star followed by one on your touchtone telephone. Okay, I'll turn the call back over to Mr. Holger Bartel.

Okay, thank you everyone for joining me today, me and Glen, for today's call about the third quarter. We LOOK forward to speaking with you again next time.

Thank you, ladies and gentlemen, this concludes today's teleconference. You may now disconnect your lines at this time, and have a pleasant day.