Travelzoo (TZOO) 2021 Q1 法說會逐字稿

Hello, everyone. Welcome to the Travelzoo First Quarter 2021 Financial Results Conference Call. (Operator Instructions). Today's call is being recorded.

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 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 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 any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's website for imported information, including the company's earnings press release issued earlier this morning. An archive recording of this conference call will be made available on the Travelzoo Investor Relations website at travelzoo.com/ir.

Now it is my pleasure to turn the call over to Travelzoo's Global CEO, Holger Bartel; and its Chief Accounting Officer, Lisa Su. Lisa will start with an overview of the first quarter 2021 financial results.

Thank you, operator, and welcome to those of you joining us today. Please open the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations website at travelzoo.com/ir.

We begin with Slide #3. Here, you can see our Q1 revenue was $14.3 million. We see continued improvement in our business. We expect to see the same trend of revenue growth in 2021. The stabilizing trend also shows a small loss that has continued from Q4 2020 to Q1 2021. We also increased our subscribers from 30.2 million as of December 31, 2020 to 31.8 million as of March 31, 2021.

On Slide 4, Travelzoo has decided to provide information on non-GAAP operating income as we believe it better explains how management evaluates performance. Slide 4 shows the non-GAAP operating income, which changed year-over-year from a loss of $1.9 million to an operating profit of $622,000. We believe the financial performance of the company is in line with our expectations. Slide #5 provides details on the items that are excluded in the calculation of non-GAAP operating income.

Please turn to Slide 6. Our continued success in voucher sales keeps pushing the positive development in cash balance. As of March 31, 2021, consolidated cash, cash equivalents and restricted cash were $72 million. Slide 7 and 8 detail our revenues by business segment. When neutralizing FX changes, the North America business segment recorded a decrease in revenue of 20% year-over-year. And the Europe business segment recorded a decrease in revenue of 52% year-over-year. While revenues from local still stagnated in Q1, advertising revenue picked up compared to the previous quarters as advertisers have started coming back to make use of Travelzoo's reach.

On Slide 9, you can see the quick adjustment of our cost structure at the beginning of the pandemic has resulted in lower fixed costs. Non-GAAP operating expenses were reduced by 46%, mostly coming from headcount adjustments throughout the entire organization and reduction of overhead costs.

In summary, as you see on Slide 10, Q1 was in line with our expectations. Looking ahead, we expect for Q2 revenue to be in the range of $16 million to $17 million. For operating expenses, we expect approximately $15 million. We expect that we report a profit in Q2.

Now Holger will provide additional information and insights.

Thank you, Lisa. Please turn to Slide 11. Travelzoo is loved by traveling enthusiasts, who look for quality offers. Travelzoo members are affluent, they are active and most importantly, they are open for new experiences. In a survey from December 2020, 71% of Travelzoo members said it influences their travel destinations. Members tell us they trust Travelzoo, and we believe that this trust is becoming an important competitive advantage.

Slide 13 gives an overview of what management and our global team are focused on. We will expand and seize the exceptional industry opportunities for sourcing high-quality travel, entertainment and local deals for Travelzoo members, continue to offer Travelzoo members flexible and worry-free deals for future travel, a format that is working very well, grow jack's Light Clubs profitable subscription revenue and grow EPS and profits as demand for travel returns. Back to the operator.

(Operator Instructions). Your first question comes from the line of Michael Kupinski.

I have a few questions. I appreciate the opportunity to ask them. Where are the members growing at? I'm just curious in terms of where you're seeing the growth? Is it growth in North America, growth in Europe? Are you seeing growth -- if you could just tell me and where that growth might be coming from?

So in Q1, the growth came primarily in the U.S. where we added members. Going forward, we expect the growth to really come in every market because we see consumers being more and more interested to travel again.

Got you. And in terms of your revenue outlook for Q2, are we starting to see Europe open up now? And is that a component of where you're anticipating to see improvement? Or is it really being driven by the U.S. at this point?

We see very positive trends for Q2 in particularly the U.K., where consumers are more confident as well as in Canada, where we see more confidence by advertisers. Germany, France and Spain, the situation is a little different. It's still comparable to Q1. And in the U.S., definitely, confidence is increasing and travel is also taking off. So it comes from the U.S., U.K., Canada, less so from the EU countries where there are still lockdowns going on right now.

And Holger, can you talk a little bit about gross margins? Obviously, gross margins are influenced by some of your product development plans. And I was just wondering if you could talk a little bit about that as well. I know that you're looking at the prospect of doing it an Adobe software update, I believe. So maybe if you could talk a little bit about that. But then just kind of give us a general idea of where you think gross margins can improve to, especially as you look to this year and maybe looking forward, maybe over the next couple of years?

Gross margins for the next couple of quarters will remain relatively constant to where they have been in the last few quarters since our voucher sales are still strong and voucher sales generate a higher percentage of cost of revenue. Going forward, we expect gross margins to go up as vouchers become less important and advertising revenue is increasing.

In terms of that gross margins, you have an ability to manage that, I guess, a little bit because of your product developments and so forth. But can you talk a little bit about where you think gross margins can go? Can they go as high as 88%? Or do you think that they'll probably be in the range of about 82% to 85%? Or what are your thoughts there generally?

Well, the expenses you are referring to product development, IT, et cetera, these are operating expenses for us. So they don't affect the gross margin, they affect the net margin. And that, as you see already in Q2, those we expect to go up quite significantly as the revenue grows and as we maintain our costs relatively stable. Gross margins, on the other hand, will probably, in the next couple of years, come back to the same levels of where they were before the pandemic.

Okay. And maybe I'm confused. How does -- and you -- I think we're looking at the product, the prospect of doing in an Adobe software update. Does that not go into gross margins? I mean, does that not affect that? Or how -- I guess, I'm curious about how that works.

Lisa, do you want to answer this?

Yes. That would be a capitalized project. And any amortization of that project would go under our PD line, which is product development in our regular expenses.

Got you. Okay. And so there wouldn't be any impact from gross margin from any of that type of rollout?

Yes. Yes, correct.

Okay. And then in terms of your PPP loan forgiveness, is that now expected in the third quarter? And can you give us just a little update on how that might fall in terms of your expenses and how that might affect the numbers?

Lisa?

Yes, I can comment on that. We've applied for forgiveness of our PPP loan. Obviously, that could take anywhere between 60 to 90 days from the time they receive it. And anything that's government related, we really can't predict what could happen. They could come back and ask further questions and delay that forgiveness process. So at this time, we're anticipating Q3, but it's very hard to say.

Your next question comes from the line of Jim Goss.

I've got a couple as well. First, I was wondering, you talked about the demographics, as you always do. And I was wondering if there have been changes in any specific demographics over the course of the pandemic? Or is it too compressed time frame to notice anything like that?

In general, our members are high income, a little bit older. During the pandemic, we actually saw slight shift to more -- towards more younger members who purchased and who looked at our offers, probably because they were more comfortable traveling. Now that the vaccinations are accelerating everywhere, we see -- we're shifting back to now the members that are a little bit older gaining confidence and regaining a larger share again.

Okay. So it might have, in some ways, broadened your appeal since you've gotten some samplings and demographics you wouldn't have otherwise.

Indeed, that is true because what we saw -- what -- in general, we see that the younger population is more active in sharing great deals with friends. They are much more active on social media. So indeed, what we saw during the pandemic is that we broadened our reach a bit more into segments that are younger. And we acquired a good amount of high-quality members in that demographic segment, which is actually quite good for us because we believe Travelzoo should be a brand for everyone.

Okay. Thanks, Holger. Another thing in terms of the vouchers, which have been much more prominent, are -- can you talk about any shift in terms at either time frames or terms of travel partners or anything else that have taken place as some of the traveler restrictions have eased and some of the confidence has come back, do you get better deals and -- from your standpoint? And can you sort of shorten the time frames you're offering? What's happening happened in those regards?

No changes really. We see continued strong demand for the vouchers. And I expect this to continue at least for the next couple of quarters. The 1 thing we are seeing is that refund rates are decreasing, and that's particularly happening in the U.K., where we see quite a decrease in refund rates from Q1. So I think that just shows that members and consumers in general are more ready to travel again, which is good. But demand for the vouchers continues to be strong.

Okay. Maybe 1 last thing. Can you talk about any patterns and trends you've noticed in terms of users of your services versus the advertisers. Is there -- do you need to get 1 before the other? Or are the advertisers trying to get ahead of the game by participating even if they don't get the response right away? How has that set of relationships shifted?

I would say that member activity is probably a bit ahead of advertiser activity because, first, the advertisers want to see good response to their advertisements and then they compete more money, and that's exactly what's happening right now, where you might recall in our meeting last month, our earnings call last month. I was showing some trends that member activity is now up to where it was a year ago. And that's why we are seeing now in Q2, increased interest from our advertisers. But look, in general, our members, we have over 30 million, as you know, they are very powerful in driving a large number of bookings. And it's just not the quantity. I spoke earlier about trust and what really makes the difference is the quality of members of travel. So in the pandemic, a lot of other companies didn't treat their customers very well. If any of you who had purchased from anyone in the past, any travel you might have seen that companies were very slow to respond to you. They didn't give you money back that you were owed we actually increase customer service. We are refunding everyone within a couple of business days, and you can read all across the web on reviews on Travelzoo that our members are not only passionate, but they trust us more today than probably what we have even seen before the pandemic. And that's very important to separate us from some other companies.

Okay. And maybe 1 last thing. The -- you -- the guidance was encouraging as you restore our profitability, are you getting more and more confident that the plans you envisioned in terms of controlling expenses relative to the revenue growth you might achieve is, in fact, working out that way, such that you have an opportunity to be more profitable, sort of like Mike was just talking about the gross margin and all those other ways as well, are you -- is the -- more and more confident that the profitability of the company should be able to achieve something beyond just the revenue growth.

Yes, right now. And in the past, everything is going according to our plan and expectations. And we don't see that changing. So we are just executing along our plan. And yes, it's going exactly as we expect. Maybe Q2 is even a little bit stronger than what we originally expected. So that's very encouraging.

Next question is from Steve Silver.

I've got 1 question as it relates to the member base. In the prepared remarks, the numbers for last year, I think it showed 31.3 million, this quarter, 31.8 million. And I know you guys mentioned last year that the user base had expanded by about 2 million members in the U.S. due to the exit of a competitor. So given that there was an offset to the net user growth, just trying to get a sense as to any information or insights you might have in terms of the members that might have left the market, whether some people just took a break from having more subscriptions -- not subscription, but just being members of travel deal services during the pandemic and whether you would expect over time and over the recovery period, coming out of the pandemic that a lot of these members that had left such services would return over time?

Yes, exactly, as you say, Steve, the last 12 months, we've certainly seen a decrease in members just because of unsubscribes. Some of them are temporary. And I would also expect that quite a good number of these members will come back. I mean, if you cannot travel, people are less interested in travel offers so now that you can travel again in the future. We hope to come back -- we hope them to come back. And as you noticed, year-over-year, we saw growth because we added new members. We added the 2 million members in the U.S. and we also added more members in Q1 than in the previous 3 quarters from organic sign-ups and from member acquisition marketing?

Next question is from Ed Woo.

Yes. Congratulations on the recovery. My question is, has it changed your view? I know a lot of industry people were saying that it's going to be a multiyear recovery. But given how you see that things are a little bit better on your end, do you think it's going to be coming back faster than you thought maybe a quarter ago?

Ed, yes, in the U.S., I would say it's coming back stronger and faster than probably what people think. Demand and interest is primarily right now in domestic trips and vacations. We see the fastest recovery, as I said earlier, in the U.S. and in the U.K., but just over the last couple of weeks, some of the countries in Europe, for example, open now for U.S. tourists, namely Greece, Croatia, and Iceland. And we just had an offer in the top 20 last week for Croatia, which found incredible response by members in the U.S. just because they see, oh, it's possible now to travel to Europe. So that gives them confidence. But we will see -- we are hopeful that the recovery is faster. You've seen a lot of other industries that there is pent-up demand, you saw the comment from Jamie Diamond of JPMorgan that consumers in the U.S. are sitting on EUR 2 trillion of more money than they had before the pandemic and I mentioned in the call last month already, we are generally seeing a shift towards longer vacations, bigger vacations, more upscale vacations. And that is also, of course, something that we benefit from because this means advertisers will be willing to spend more on promoting these kind of offers. And we also see it with the vouchers they are purchasing at the average value of a voucher today versus before the pandemic is significantly higher.

That sounds good. And then as the business recovers more, will you take a more aggressive stance to grow your subscriber list? Will you increase and ratchet up marketing back to where it was to rapidly grow? Or is it still a very controlled growth?

It will be a combination of all of that for sure. We are still confident that we will grow the Jack's Flight Club members significantly this year. And we had a great opportunity last quarter to add members from a competitor. This was very attractive for us. And we also hope that there could be a few more of these kind of transactions in the future as some of our competitors are still struggling.

We have no more questions. I will now turn the call over back to Mr. Holger Bartel.

Yes, ladies and gentlemen, thank you for your time and support, and we look forward to speaking with you again next quarter. Have a nice day.

Thank you, ladies and gentlemen. This concludes today's conference call. You may disconnect your lines at this time. Have a nice day.