Travelzoo

Hello, everyone. Welcome to the TravelZoom 4th 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 the presented in these slides are not statements of historical facts. Constitute for... Oh, pardon me. The company would like me to remind you that all statements made during this conference call and presented in these 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 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. Now it is 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.

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 TravelView.com backslash IR. Let's begin with slide number three. 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 increased safety measures and travel restrictions during Q4 2021, which resulted in a loss per share of 25 cents. 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 members year over year from 30.2 million to 30.3 million. On slide four, 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 the operating loss is 2.2 million. North America revenues and operating income are net of 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 a 2.4 million loss in 2020. On slide five, we decided to provide information on our non-GAAP operating profit as we believe it better explains how TravelZoo evaluates performance. This slide shows the non-GAAP operating loss, which was 2.1 million. Slide six provides details on the items that are excluded in the calculation of non-GAAP operating profit or loss. Please turn to slide seven. As of December 31st, 2021, consolidated cash, cash equivalents, and restricted cash were $45 million. The cash balance reached the 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 neutralizing 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 nine, 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.

Thanks, Lisa. So we expect the company's financial performance to really improve, 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 are open to new 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 Czech flight clubs' 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. Back to the operator, and we're looking forward to questions.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Michael from Noble Capital Markets. Your question, please. Thank you.

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?

Lisa, do you want to address this? Hi, Michael.

Hi. Michael, we expect that we can fund those merchant payable 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. Gotcha.

And I know I went on a cruise last fall, and 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 could kind of add a little bit more color on the type of first quarter.

You broke up a little bit there, did you?

Yes, Michael. I would say since the end of January, beginning of February, things have 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 March 3rd. 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.

And, Holger, can you tell me a little bit about Europe versus North America as you go into the first quarter, you know, 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, you know, the rebound that you're seeing by North America versus Europe?

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

One of the last questions, the sales and marketing was a little bit higher than I expected. I know that you were 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,

you know it just seemed like it came in a little bit higher than what I was looking for any thoughts well first there were a couple of extraordinary expenses in Q4 that will not repeat we didn't want to go into too much detail but that drove it up a bit higher than what you expected and second you're absolutely right it's an expense item over which we have much more control over but we have actually increased spend in Q1 a bit because We are positive about revenues, and we really want to grow members this year.

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

Thank you. Our next question comes from the line of Steve Silver from Argus Research. Your question, please.

Great, thanks, and thanks for taking the question. My question is more strategic in nature. Given that prior to the pandemic, you guys acquired 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 the potential for new geopolitical tension that may impact travel in Europe, I'm just trying to get a sense as to how you're thinking about about any additional levers there might be available to you to continue to be proactive and less reliant on normalizing conditions from prior to the pandemic?

Yes, of course. Well, we know we acquired CheckSlideClub at a time that was, in the end, a little bit unfortunate beyond our control because right after we acquired CheckSlideClub, the pandemic hit and there wasn't a lot of interest in in services that tell you about the airfare deals. That is changing, so we really see 2022 as a great opportunity for checks like that. We never really had that opportunity over the last two years. As you might recall, they are primarily active in the UK, and there's a big opportunity to expand in the US, 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.

Great. Thank you so much for taking the question.

Thank you. Our next question comes from the line of Jim Goss from Barrington Research. Your question, please.

Good morning. This is Pat on for Jim. I was just wanting 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 as kind of like a share of revenues in Europe I guess really more also on like the merchant payable side since you know the advertising side it can be kind of offset by other territories.

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 we last week once the war started we removed any trips and offers Any trips and offers that included Russia, we approved them for our website. 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. In Europe, our members are in the U.K., Germany, Spain, and France. We also have some in other countries like Austria, Switzerland, Italy, and so forth, but no one in 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 fact, in the last seven days, refund rates even decreased a little bit over the previous week. So I think people are still in a pattern where they are waiting to see what happens, and so far we don't see that members are significantly making changes to their travel plans.

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 of redemption yet. that would cause any concern for the company. Okay.

And then on, I guess, just on the productivity of the employee base, I was kind of wondering if you could maybe go into some of the, I guess, reasons for confidence that you can kind of keep the lower headcount and operate more efficiently to drive the higher profitability if revenue trends continue to improve?

It's mainly a result of us restructuring the business and focusing. So we don't see, as we said earlier, we don't see any big increases of fixed expenses this year versus where we were. On the variable side, Michael asked about it. We plan to spend or invest more in member acquisition. But in general, no, as we are increasing our advertising rates and as more members are purchasing travel again with our partners and with us to our platforms and revenue goes up, it doesn't really affect the fixed cost base.

Okay, thank you.

Thank you. Our next question comes from the line of Ed Wu from Ascendant Capital. Your question, please.

Yeah, thanks for taking my question. In terms of how do people feel about travel this coming summer, do you think people are much more optimistic as Omicron is fading?

In general, we see a trend that... members, our members and probably all consumers, are booking a little bit more closer to their travel date. So they feel, oh, 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 Travel Zoo 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 Travel Zoo. We are telling our members about destinations that are not so crowded. We are telling our members about that specific cruise ship that Michael was on whereas only 600 passengers instead of 3,000. Today we are telling our members in the U.S. to go to Madeira on a nonstop flight that we have actually created exclusively for TravelZoom 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 said, 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 a 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 and where great deals can be found.

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

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 also 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. But 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.

Thank you.

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

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