Travelzoo

Hello, everyone. Welcome to the Travel Zoo Second Quarter 2022 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-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's my pleasure to turn the floor over to TravelZoo's Global CEO, Holger Bartel, its Chief Accounting Officer, Lisa Su, and its Global Director of Travels and META, Arvina Aluwalia. Lisa will start with an overview of the second quarter 2022 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 backslash IR. Let's begin with slide number three. Our Q2 revenues were lower than expected. However, profitability was good. Operating income, which we as management call operating profit, was $1.8 million, which is approximately 10% of revenues. Our Q2 revenue was $17.7 million, down 7% from $19.1 million year over year. Our operating profit in Q2 was $1.8 million, which resulted in earnings per share of $0.08. Compared to the previous quarter, the number of members remained the same. On slide four, we go into more details about the revenues and operating profit of our two more significant business segments, North America and Europe. North America continues to outperform Europe in the recovery from the pandemic. North America revenue decreased 11% year over year but increased 6% quarter-over-quarter. The operating profit in North America was $3.1 million in Q2 compared to $1.7 million in Q1. Europe had revenue growth year-over-year of 5%. Europe had an operating loss of $1.5 million due to increased member acquisition spend in Q2. As shown on slide five, even though revenue was still lower than pre-pandemic revenue levels, the changes that we have made to the business are generating higher operating margins compared to pre-pandemic. On slide six, North America's business segment reached 25% operating margin, which is the highest it has been in six years. And we think that it can still go higher. On slide 7, we provide information on non-GAAP operating profit, as we believe it better explains how TravelZoo evaluates performance. This slide shows the non-GAAP operating profit, which was $2.6 million in Q2. Slide 8 provides details on the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide 9. As of June 30, 2022, consolidated cash, cash equivalents, and restricted cash were $26.7 million. The cash balance reached the expected level as the number of vouchers outstanding has become smaller. Merchant payables decreased proportionately. Slides 10 and 11 detail our revenues by business segment. When neutralizing FX changes, the North America business segment saw a year-over-year decrease of $1.6 million. The Europe business segment, which we report in U.S. dollars, is negatively impacted by the strong dollar. Yet we saw in Q2 an increase by $700,000 year-over-year, which represents 17% growth. The local business, which consists of advertising from restaurants, spas, and entertainment shows and events, remains far behind what it was pre-pandemic. Slide 12 shows that this pandemic led to a significant reduction of fixed costs, which can be kept relatively low in a foreseeable future, while revenues are expected to grow. For Q3 2022, we currently expect higher revenue year over year and also profitability. We continue to see a trend of recovery of our revenue. However, there could be unexpected fluctuations in the short term. During the pandemic, we have been able to lower our fixed costs. We believe we can keep our fixed costs relatively low in the foreseeable future while revenue is still expected to grow. Now I turn over to Holger.

Thanks, Lisa. From the perspective of management, Q2 was a good quarter. The company is profitable again and even better. Profitability is higher than before the pandemic. We now see that the changes and improvements in efficiencies that we've made over the last two years are resulting in higher operating margins. In Q2, when the revenue was a little lower than expected, the company's operating margin was actually the highest that we have seen in six years. And in North America, the operating margin was already 25%. We believe that revenue will continue to recover and grow. As you can see on slide 13, with more than 30 million members, 7 million mobile app users, and 4 million social media followers, TravelZoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. The latest survey results for TravelZoo members in the U.S. show that 58% took three or more vacations in 2021, 94% have a valid passport, which compares to 43% of the US population. Next on slide 15, I provide an overview of what management and our global team are focused on. We want to increase the number of members and accelerate revenue growth to reach and then exceed pre-pandemic levels, grow Czech flight clubs' profitable subscription revenue, utilize higher operating margins to significantly increase EPS, and launch TravelZoo Meta. So at this point, I'd actually like to turn over to Arvina Aluvalia, who is TravelZoo's Global Director, TravelZoo Meta.