Travelzoo (TZOO) CEO Holger Bartel on Q4 2021 Results - Earnings Call Transcript

Travelzoo (NASDAQ:TZOO) Q4 2021 Results Conference Call March 3, 2022 11:00 AM ET

Company Participants

Holger Bartel - CEO

Lisa Su - CAO

Conference Call Participants

Michael Kupinski - NOBLE Capital Markets

Steve Silver - Argus Research

Pat Sholl - Barrington Research

Ed Woo - Ascendiant Capital

Operator

Hello, everyone. Welcome to the Travelzoo Fourth Quarter 2021 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. Today's call is being recorded.

The company would 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 -- pardon me. The company would like me 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 provision 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 important information, including the company's earnings press release issued earlier this morning. An archived recording of this conference call will be made available on the Travelzoo Investor Relations website at travelzoo.com/ir.

Now it's my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel; and its

Chief Accounting Officer, Lisa Su. Lisa will start with an overview of the fourth quarter 2021 financial results.

Lisa Su

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.

Let's begin with Slide number 3. Here you can see that our Q4 revenue was $14.1 million, up 13% from $12.5 million year-over-year. Our operating loss in Q4 was 3.4 million due to the surge of the Omicron variant and related increase safety measures and travel restrictions during Q4 2021 which resulted in a loss per share of $0.25. We believe that this was a short-term effect as many countries have recently started lifting the COVID-19 related restrictions. We saw a slight increase in numbers year-over-year from $30.2 million to $30.3 million.

On Slide 4, we go into more details about our two more significant business segments, North America and Europe. We are showing the revenue and operating income for the last three years for Q4. Both of these segments had significant revenue decline in 2020, but are on the expected path of recovery. Our North America business segment is at 53% of the 2019 levels, and operating loss is $2.2 million. North America revenues and operating income are net as a cautionary increase in reserves, which in Q4 lowered our reported revenue and operating income by $1.6 million.

With Q4 2021, showing 53% of Q4 2019 revenues, our Europe business segment has now recovered to the same level as North America has with an operating loss of $1.2 million, which is an improvement from the $2.4 million loss in 2020.

On Slide 5, we decided to provide information on our non-GAAP operating profit as we believe it better explains how Travelzoo evaluate performance. This slide shows the non-GAAP operating loss which was $2.1 million.

Slide 6 provides details on the items that are excluded in the calculation of non-GAAP operating profit or loss.

Please turn to Slide 7. As of December 31, 2021, consolidated cash, cash equivalents and restricted cash were $45 million. The cash balance reached expected level as merchant payables decreased and receivables and deposits combined increased by $14 million in a transition of switching to a more efficient payment processor.

Slides 8 and 9 detail our revenues by business segment. When utilizing FX changes, the North America business segment had a slight decline of 400,000 and the Europe business segment increased by almost 2 million year-over-year. Compared to the prior year period, both revenue types, travel and local have both picked up as advertisers and partners have started coming back.

On Slide 9, you can see that during the pandemic, we have been able to lower our fixed costs. We believe we can keep fixed costs relatively low in the foreseeable future, while revenue is expected to grow. We believe this should result in higher profitability going forward.

Looking forward, we currently expect substantially higher revenue and a return to profitability in Q1. We continue to see a trend of recovery of our revenue. However, there could be unexpected fluctuations in the short-term.

Now I turn it over to Holger.

Holger Bartel

Thanks, Lisa. So we expect the company's financial performance to really significantly improve in 2022. We see more interest from Travelzoo members, activity levels are up. And we know also that travel and entertainment companies want to work with us as the industry continues its recovery.

So as you see on Slide 11, we have over 30 million members, 6.8 million mobile app users and 4 million followers on social media. We're really loved by travel enthusiasts who are affluent, they're active, they travel quite a bit, and they will continue experiences.

Slide 13 shows you what we as a management team are focused on. First, we want to take advantage of the exceptional industry opportunity during this time to provide our 30 million members with offers that are exclusive, that are irresistible in the area of travel, entertainment, local offers and experiences.

We want to grow members in 2022 and accelerate revenue growth. We will also put more focus on growing Jack's Flight Club's profitable subscription revenue. And of course, we want to return to profitability and increase profitability as demand for travel returns as we're coming out of this pandemic.

So back to the operator and we're looking forward to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Michael from NOBLE Capital Markets.

Michael Kupinski

Just a couple of questions here. Number one, I know that you have 45 million in cash. And when you look at merchant payables and so forth, your liabilities look a little higher. How do you plan to reconcile the two balances there?

Holger Bartel

Lisa, do you want to address this?

Lisa Su

Michael, we expect that we can fund those merchant payables amounts, because we can definitely grow our profits for 2022. And a lot of the merchant payables go out until 2023, 2024, and even out to 2025. And so they're more of a long-term nature.

Michael Kupinski

And I know, I went on a cruise last fall, there were only 473 people on a ship that had 6,000 capacity. So I'm not surprised that you had some issues in the quarter. But I understand now that bookings are significantly higher. And I've learned that bookings on cruise ships are dramatically even the pricing is going up significantly. And I was just wondering if you can kind of give us a sense of, I know that you're talking about the first quarter and that revenue should be up nicely. You had a pretty easy comp in the first quarter of last year. I was just wondering if you can kind of add a little bit more color on the type of first [Technical Difficulty] first quarter.

Lisa Su

You broke up a little bit there.

Holger Bartel

Yes. Michael, since -- I would say since the end of January, beginning of February things that improved quite dramatically for sure, we are seeing much more demand. We are seeing more members booking with our partners refunds have gone down quite a bit in February versus January. So, yes, we're quite optimistic, but it's only more absurd. And with the world around us. I'm hesitant to make any specific prediction as to how much higher Q1 this year will be versus a year ago, but at this time, we definitely expect that revenues will be quite a bit higher than last year.

Michael Kupinski

And Holger, can you tell me a little bit about Europe versus North America, as you go into the first quarter, because of the geopolitical issues going on in Europe? Are you seeing Europe not rebound as much as North America at this point? Or can you kind of give us a flavor of the rebound that you're seeing by North America versus Europe?

Holger Bartel

We see both the HTC optimism on both sides of the Atlantic, in the U.S. and Canada, and in all the European countries that we are in.

Michael Kupinski

And one of the last questions, the sales and marketing was a little bit higher than I expected. I know that you're going to step that up. Is that a variable cost to where you can pull that back if you're not seeing revenues kind of come in as strong as you expected? Or kind of give us a flavor of, it just seems like it came in a little bit higher than what I was looking for? Any thoughts?

Holger Bartel

Well first, there were a couple of extraordinary expenses in Q4 that we're not repeat. We didn't want to go into too much detail, but they drove it up a bit higher than what they expected and secondary absolutely right. It's an expense item over which we have much more control over. But we have actually increased spend in Q1, because we're positive about revenues, and we really want to grow members this year.

Michael Kupinski

Okay, great. Well, here's to a better and much improved 2022. Thank you.

Operator

Our next question comes from the Steve Silver from Argus Research.

Steve Silver

My question is more strategic in nature. Given that prior to the pandemic, you guys acquire Jack’s Flight Club. And throughout the pandemic, you shifted the revenue mix towards vouchers to preserve cash flow. So given the fact that the core business has been so disrupted by COVID-19, and now with the potential for new geopolitical tension that may impact travel in Europe. I just trying to get a sense as to how you're thinking about any additional rubber there might be available to you to continue to be proactive and less reliant on normalizing conditions from prior to the pandemic?

Holger Bartel

Yes, of course. Well, we acquired Jack’s Flight Club in the time that was in the end a little bit unfortunate beyond our control, because right after we acquired Jack’s Flight Club the pandemic hit, and there wasn't a lot of interest in services that tell you about the [indiscernible] that is changing. So we really see 2022 as a great opportunity for Jack’s Flight Club. We never really had that opportunity over the last two years.

As you might recall, they're primarily active in the U.K. and they have a big opportunity to expand in the U.S. So that's the first one.

On the voucher side, the business is actually shifting quite a bit. I would say in Q4, the revenue that came from vouchers was much, much, much lower than it was in the previous quarters, advertising revenue is up across the board. We will continue to scale that this year. And then last but not least, of course, we will start experimenting a bit more on members as a revenue opportunity in the area of subscription fees.

Operator

Our next question comes from the line of Jim Goss from Barrington Research.

PatSholl

This is Pat on for Jim. I was just wanted to follow-up on the past couple of questions on Europe. I was kind of just wondering if you could break out maybe your exposure just in general to Eastern Europe kind of take a share of revenues. And I guess really more also on the merchant payables sides and the advertising side, it can be kind of offset by other territories?

Holger Bartel

Sure. I can speak about the first and then Lisa can speak about the merchant payables. Really the exposure to Eastern Europe is very minimal. Actually last week was -- it was started to remove any trips and offers that included Russia, we [indiscernible] and what achieved. I was surprised, there were not many in the U.S., it was less than a handful. Also, we don't operate in Eastern Europe, our members are in Europe, our members are in the U.K., Germany, Spain and France, we have also some other countries like Austria, Switzerland, Italy, and so forth, but no one Eastern Europe.

On that side, we're not affected. On the other hand, we actually just checked this morning to see if we are seeing more cancellations or voucher refunds particularly from U.S. members. As a result of what they are hearing about the war in Europe, and we are not seeing actually any change in trend in the last seven days, refund rates even decreased a little bit. So I think people are still on paddle where they are waiting to see what's happened. So far, we don't see that members are significantly making changes to their travel plans.

Lisa Su

And I would also echo that. I would say that most of our merchant payables don't go into Eastern Europe. And so I haven't seen any patterns redemptions that would cause any concern for the company.

PatSholl

And then on -- I guess, just on the productivity of the employee base, I was kind of worry, if you could maybe go into some of the, I guess reasons for compensation kind of keep the lower headcount and operate more efficiently to drive the higher profitability as revenues continue to improve?

Holger Bartel

It's mainly a result of our restructuring the business and processing. So we don't see as we get to earlier. We don't see any increases on fixed expenses this year versus where we were. On the debit side, Mike asked about it, we plan to spend more [indiscernible] acquisition. But in general, as we are increasing our advertising rates and more members are purchasing general again with our partners and that platform and revenue goes up, it doesn't really affect the fixed cost base.

Operator

Our next question comes from the line of Ed Woo from Ascendiant Capital.

EdWoo

In terms of, how do people feel about travel just coming summer? Do you think people are much more optimistic as Omicron is updating?

Holger Bartel

In general we see a trend that members -- our members and probably all consumers booking a little bit more closer to travel to their travel date. So they feel, I can travel right now. So let me go right now in the next two weeks. In terms of response to offers that we have for summer, yes, we see overall a good response but that's also related, of course to not just Travelzoo offering the ability to cancel or refund these trips. But the entire travel industry has really shifted towards providing consumers big flexibility. So some destinations are actually becoming already quite crowded but that's what's then good about Travelzoo. We are telling our members of our destinations that are not so crowded, we are telling our members about that specific cruise ship that Michael was on, we have only 600 passengers instead of 3000.

Today, we are telling our members in the U.S. to go to Madeira on a nonstop flight, we have actually created exclusively for travelers who members together with a partner. So you can fly for the first time nonstop from New York to Madeira, and that's a destination that a lot of our members didn't even think about. And those who went on this flight in the last few months are reporting back that they had a wonderful time there.

So we are able to tell our members about new ideas, new destinations, and in that respect we do really great service for the travel industry that we shift demand from one destination that might be overcrowded to another one that might be less known in recreate us can be found.

Ed Woo

And then my last question is on a hotel or travel capacity, particularly hotel some of the labor shortages. Are you seeing them improve and seeing hotels open up to bigger capacity?

Holger Bartel

Yes and no, hotels are definitely a two-sided story where you see in some destinations. Again, significantly higher hotel rates and some hotels even deliberately say, look, I don't want to go over 70%, 75% occupancy rate that allows me to provide a good experience and those allows me to keep my hotel rates high. In these cases, it's a little bit tricky for us to find deals, but on the other hand, there's plenty of other destinations and hotels that just wish that their occupancy was at 70% and 75%.

I haven't heard much about labor shortages. I think they are easing a bit more in the U.S., in Europe I don't think we had that issue that much in the hotel industry. I would say overall, things are getting back more to normal. Probably the most normal I've seen since April 2020 when this whole pandemic started.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand this program back to Mr. Holger Bartel for any further remarks.

Holger Bartel

Yes, no, no further remarks. But ladies and gentlemen, thank you so much for dialing in and for your time and support. And we look forward to speaking with you again next quarter with hopefully better numbers. Have a nice day.

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Have a nice day.