Travelzoo (TZOO) 2016 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Travelzoo Fourth 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 beginning the Company's presentation, the Company would like to remind you that all statements made during this conference call and 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 the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from these 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 10-Q and other periodic filings with the SEC. 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 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 conclusion of this call.

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

Thanks, operator. Good morning and thank you all for joining us today for Travelzoo's fourth quarter 2016 financial results conference call. I'm Holger Bartel, Chairman and Global CEO of Travelzoo. 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 fourth quarter financial results and then Holger will provide an update on our strategy. Thereafter, we will open the call for a 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 $29.3 million, down 9% year-over-year or down 5% in constant currencies. Our earnings per share this quarter was $0.07, which is $0.04 higher than prior year period. Our members grew to 28.8 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 $18.3 million, representing a year-over-year decrease of 6%. Revenue in Europe was $8.5 million, representing a year-over-year constant currency decrease of 3%, and Asia-Pacific revenue was $2.4 million, representing a year-over-year constant currency decrease of 9%.

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 $1.2 million, $1 million was due to lower voucher sales for local as we have focused our business on the most attractive markets and $7,000 was due to lower search revenues from our pull back on our search traffic acquisition spend. These decreases were offset by a $500,000 increase in travel, primarily due to the growth in hotels and other deals.

Turning to slide 6, there was a $1.1 million negative FX impact on Europe revenue. On a constant currency basis, Europe year-over-year revenue decreased by 3%. This constant currency decrease of approximately $300,000 was primarily due to lower search revenue from less search traffic acquisition spend and continued travel industry headwinds offset by an increase in local revenue.

On slide 7, Asia-Pacific year-over-year revenue decreased by approximately $200,000 as we continue to experience the impact of changes in our sales organization in various countries and had fewer staff.

Slide 8 provides a breakdown of our operating income. We had $1.9 million in overall operating income. North America generated $2.1 million and Europe generated $6,000. Asia-Pacific recorded an operating loss of $800,000, which slightly decreased year-over-year. Despite overall lower total revenue, net income doubled year-over-year and as we operated smarter.

Slide 9 shows the cost of revenue and operating margin. Cost of revenue as a percentage 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 efficiencies.

Slide 10 demonstrates our progress on managing costs. Operating expenses decreased year-over-year in all three business segments.

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 declined due to lower search revenues. We generated operating cash flow of $6.8 million and repurchased $3.9 million of our stock. Exiting the quarter with a solid cash position of $26.8 million, of which $15.9 million was held outside the US.

Turning to slide 13, in summary, the majority of the revenue declines were driven by a planned reductions in 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 despite continued stock repurchases.

Looking forward to our first quarter of 2017, we expect the following. We expect the revenue trends that we have experienced over the last several quarters to continue in the first quarter. This is due to the transition of our products that is still underway, including getaways, local deals and search, as well as the elimination of certain unprofitable travel business activities. Due to a likely larger negative FX impact on our European revenue, we expect the year-over-year percentage rate of declines in total revenue to be larger than Q4. We expect search revenue to be $2.3 million to $2.5 million lower than last year, as we reduce our acquisition spend and as our new responsive website has intentionally shifted away from Super Search to improve the overall member user experience. We do not expect this to affect our operating income.

We expect to increase member acquisition spend sequentially and we plan to increase investments in our Asia Pacific segment, in particular for China, which were reduced year-over-year EPS by approximately $0.03. We expect an additional approximately $600,000 of quarter-specific non-recurring expenses in Q1 for various initiatives.

So in summary, given these trends and investments, we expect to generate lower operating income year-over-year. 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 fourth quarter of 2016. Now Holger will provide you an update on Travelzoo 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 have over 28 million Travelzoo members worldwide and we continue to add new members every day. At the same time, we are working to enhance our products to serve our users better. We not only want to have them 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 or vacation package for a certain month. Revenues per member have been decreasing over the past few 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. During 2016, we added new members at a faster pace than three years or four years ago, and we increased our investments in Asia Pacific. New members are expected to yield benefits to our business for years to come.

Second, we've been working to enhance our products to be more mobile-friendly and easier to use so that members can search for specific deals faster and better. We completed the launch of our new responsive website in the US and plan to have it rolled out around the globe in the next few months.

Third, we continue to enhance our hotel platform for date specific 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 I said last quarter, our responsive website went live and it puts the ability to search for all Travelzoo deals front and center. Users cannot only search by keywords, but they can also more specifically come to us when they are looking for deals and offers for specific dates and periods. During 2017, we are planning to increase the amount of exclusive offers that we negotiate for our members in areas beyond hotels such as vacation packages, cruises and local offers. Hotel search is fully integrated but we are planning to replace Super Search with a better flight experience. This will reduce Super Search revenues for flights and hotels on the new site. User and advertiser feedback on functionality and enhanced look and feel of the site have been positive and we see an increase in return visits.

On slide 17, I would like to highlight how we are increasingly reaching our members beyond email. Social channels such as Facebook in North America or Europe or WeChat in China, enable us to deliver offers to our members who love to share them. And an increasing number of Travelzoo members are checking their weekly Top 20 through our app before they even receive an email. We have also started to personalize our products to member preferences.

Turning to slide 18. 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 at a Michelin Star restaurant, our focus is always on quality. Our test booking center ensures that the deals that 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 our management focus on slide 19. Maintaining and even strengthening our quality content leadership is crucial. We intend to resume topline growth in multiple ways via 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 who use us. 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.

(Operator Instructions) Dan Kurnos, Benchmark Company.

Great, thanks. Good morning. Just three quick ones from me. I guess kind of high level, we've still been hearing about sort of that shift in consumer behavior away from, I guess terror hotspots driving some strength in ancillary marketplaces. Holger, are you seeing that trend to continue and have you tried to expand your reach in countries like say Portugal to capture this movement?

Yes, Dan. I think what we are seeing is that demand for travel concentrates more and more on specific areas, Portugal is a particularly popular destination this year. I've also heard that Chinese travelers are planning to spend much more time in Spain this year. So on the one hand that makes it for us interesting because we can create more offers in these countries. On the other hand, it's also a bit tricky because offers in places where people don't want to travel to are not doing as well. So I think overall what we just see is a larger concentration on areas that people want to travel to and other areas that are changing over the course of the year in demand.

Great. And then we've been hearing a ton of ads lately from bundler and vacation oriented startups like tripping.com or Upside. We've also obviously had the spinoff of Trivago and Priceline acquiring Momondo and metasearch. So have you seen any change in the competitive landscape or challenges with acquiring unique content or deals which is what you talked about trying to increase on a go-forward?

Not so much because the suppliers that come to us when they need help during periods when they are not so busy, there is usually not a single company that will help them to fill the rooms, for example of a hotel, there is not a single company you can generate enough demand to fill all the rooms that they really need. And particularly in places that are not top destinations like New York, but secondary destination or tertiary destinations, particularly destinations where consumers would go to that are out of the city like -- something like Napa Valley or so comes to my mind. In these places, even the big sites like Expedia, booking.com cannot really generate a lot of incremental demand during periods like early in the year when all these hotels are looking to fill their rooms. So when it then comes to them to look for help that brings them additional guests, it's not really one single company that can get can help them.

Okay. That's good. That's helpful. And then just lastly, we noticed there was a slight sequential moderation on unduplicated sub count in Q4. I'm assuming it might be because of the tax changes, I don't know if there's anything to call out here in terms of seasonality or user stickiness, but if you could address that and then just any initial earnings you've had since the website was rolled out and -- the new website was rolled out, plus of course internationally, that's yet to come, so just any initial thoughts would be helpful. Thanks.

Yes, generally, Q4 is a quarter where we don't sign up as many new members because people are focused on Christmas and holiday shopping, advertising is expensive and at the same time we are also constantly unsubscribing technical email addresses that -- or email addresses that technically don't work anymore and we are looking to update them, that sometimes affects the number. In terms of the new site, as I said, it's going to roll out in the next few months around the world, we have seen an increase in return visitors, that's great and we've also seen an interest from a lot of companies that we have not worked within the past, so that's good news as well.

Tom White, Macquarie.

Hi guys, it's Charlie here on behalf of Tom, thanks for taking my questions. I've got four of them for you. I was hoping you could share your view on the health of the broader European travel market based on what you're seeing?

I'm sorry. Can you (multiple speakers).

Sure. Could you share your view on the health of the broader European travel market?

Yes. As I mentioned, I think people travel as much as before, they just travel to different destinations. They don't travel as much anymore to places like Turkey or countries like Morocco, Egypt, instead they travel to places like Portugal or Spain, so we haven't really seen a decrease in the amount of travel, it's just shifting.

Great. And can you provide some more color on your customer acquisition spend and strategies for 2017?

Glen, do you want to take that?

Yes. So Q4 usually is a bit lower on the acquisition spend, just because of the whole holiday market, but overall the year, we kept a constant higher level than historically we've had and we have plans to remain in that spend position going into 2017.

Got it. You had mentioned seeing growth and offers in 2017 in the press release, is there any way that you could help us quantify that?

We don't have a specific target, but our goal really is to make the Travelzoo membership highly desirable and in order to do that, we feel that exclusive offers are really what makes the Travelzoo membership special. So we will just focus more on exclusive offers that are limited to our members, and I think that's going to make them over time more happy and us more successful.

Great. And lastly, there's been a lot of growth in the alternative accommodation and the vacation rental space, is that something that you guys could participate in or thinking of doing so?

Not right now. We think we have still an opportunity to increase our business in areas like vacation packages, for example, local deals. Also what's really important for us this year is to grow distribution of offers beyond just email, earlier in one of the slides, you saw that I gave an example of an offer that was -- you would more often on Facebook than on our sites through email. These things are very important that we just don't continue to rely only on email, it's great that we have more people looking at our offers on the apps, sharing them on social and that's something that is also important for us in 2017.

Got it. Great, thank you.

Thank you. I'd like to turn the call back over to Mr. Holger Bartel.

Ladies and gentlemen, well, thanks again for your time and support. We look forward to speaking with you again next quarter.

This concludes today's teleconference. You may now disconnect your lines at this time and have a pleasant day. Bye.