This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Hello everyone. Welcome to the TravelZoo 4th 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 Travel Zoo Investor Relations website at TravelZoo.com slash IR. Now it's my pleasure to turn the floor over to Travel Zoo's Global CEO, Olga Bartel, its Chief Financial Officer, Wayne Lee, and its General Manager, Travel Zoo Meta, Arvina Alawalia. Wayne will start with an overview of the fourth quarter 2022 financial results.
spk08: Thank you, Regina, and welcome to those of you joining us today. Please open or refer to 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 slash IR. Let's begin with slide number three. Revenue growth accelerated in Q4, leading to much stronger earnings. Our consolidated Q4 revenue was $18.6 million, up 36% from $13.7 million in the previous year And in constant currencies, it was 19.4 million, which is an increase of 42% year over year. Operating income, which we as management call operating profit, was 3.6 million, which is approximately 19% of revenues, compared to an operating loss of 3.8 million in the prior year. As of December 31st, we had 30.4 million unduplicated members. compared to $30.3 million as of December 31st, 2021. On slide four, we go into more details about the revenue and operating profit of our two more significant business segments, North America and Europe. North America segment revenue increased 53% year-over-year from $8.6 million to $13.1 million. The operating profit in North America was 3.7 million in Q4, compared to an operating loss of 2.1 million a year ago. Europe's segment revenue increased from 4.3 million to 4.7 million, or 9% year-over-year. At constant currencies, Europe revenue increased 23% year-over-year. Europe had an operating profit of 42,000 in Q4, compared to an operating loss of 1.7 million in the prior year. On slide five, you can see that our operating margin for all of 2022 reached 11%, which is at a level higher than our operating margins before the pandemic in 2020. Before the pandemic, TravelZoo's reported operating margin was much lower because of operating losses from our Asia Pacific segment. In March 2020, TravelZoo decided to exit its Asia Pacific business and operate it as a licensing business going forward. Now the operating margin shows the true profitability of TravelZoo in North America and in Europe. Slide six shows that our operating margin in North America reached 29% for Q4. On slide seven, 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 4.8 million in Q4, compared to a loss of 2.4 million in the prior year. Slide eight provides more information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide nine. As of December 31st, 2022, consolidated cash, cash equivalents, and restricted cash was 19.4 million. The cash balance reached the expected level as the number of vouchers outstanding has decreased greatly at the end of 2022. Slides 10 and 11 detail our revenue by business segment. the North America business segment saw a year-over-year revenue increase of $4.5 million. Turning to slide 11, the Europe business segment, which we report in U.S. dollars, was and continues to be impacted by the strong dollar. We saw revenue in Q4 increase by $384,000. But in constant currencies, revenue increased $1 million year over year. Slide 12 shows that the pandemic led to a significant reduction of fixed costs. We believe we can keep our fixed costs relatively low in the foreseeable future while revenues are expected to grow. For Q1 2023, we currently expect higher revenue and profitability. 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. Now, I turn over to Holger.
spk04: Thank you, Wayne. Revenue growth accelerated in both North America and in Europe, leading to much stronger earnings. As the recovery from the pandemic continues, we will leverage TravelZoo's global reach and trusted brand to further improve earnings in future periods. 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. Slide 13 provides more information about our members. 87% say they are open to new destinations and travel ideas. So travel zoo members are travel enthusiasts. Slide 15 provides an overview of what management and our global team are focused on. We want to reach and surpass pre-pandemic number of members and accelerate revenue growth. We want to utilize higher operating margins to significantly increase EPS. grow ChexFlightClub's profitable subscription revenue, and launch TravelZoo Meta. At this point, I'd like to turn over to Arvina.
spk02: Hi, everyone. Today's update will be super quick since the team is pretty busy with the launch of Phase 1 of TravelZoo Meta in the coming weeks. For today, please turn to the next slide for a first look at one of TravelZoomeca's marketing teasers.
spk03: Hello, sentient beings. I'm Albert, your MC Square. Sorry, physics joke. Come on, I have much to show you. With Travelzoo Meta, we can go anywhere and anywhere with any who. Winning! This is traveling in the Metaverse, where you can explore hard-to-reach corners of the world. 10th century Vikings! Oh, this is lit! You can travel to the new spaces beyond your imagination with Travelzoo Meta and connect with friends from around the world. Woo-hoo! What do you live for? What was that crazy thing? Wherever we go, don't forget to pack a hairbrush. Oh, spammer. If you want to know more, just connect. I already did. You can say it. I'm genius.
spk02: With that, I'm handing over to the operator for questions for Holger, Wayne, and me.
spk01: The floor is now open for questions. If you do have a question, please press the star followed by the number one on your touchtone phone at this time. Once again, if you do have a question, ladies and gentlemen, that is star followed by one on your touchtone phone. Please hold while we poll for questions. Our first question comes from the line of Michael Kupinski with Noble Capital Markets.
spk07: Thank you for taking the questions. I appreciate that. A couple of questions. I was wondering, Holger, can you kind of, you indicated that, you know, the third quarter shaping up to be a little bit better. I'm sorry, the next quarter shaping up to be a little bit better. I was just wondering if you can kind of put some color around that. What are you seeing in terms of people traveling both North America versus Europe? Are there any disparities there? Then also, I have a few questions about Jack's Flight Club as well.
spk08: Okay, Michael.
spk04: So in general, as you see in Q4 and now again in Q1, it's become easier for us to negotiate offers for our members. That's, of course, resulting in more activity by our members. And also advertisers are back much stronger than last year because there's more confidence in travel. And while we have high inflation everywhere and possibly recessions coming, travel is one of the areas where consumers don't want to They don't want to give up on it. They just want to do more for less and they are looking for better deals. And that's, I think, where we are well positioned. So we see that continue in Q1. As you saw, North America was a bit stronger. Europe is still lagging a bit. We see that gap closing in Q1 and probably this year. So in general, in Europe, travel activity is also quite good. And our business in Europe is improving better. and more quickly now than probably last year. So that's good.
spk07: Gotcha. And then can you give us some color on voucher sales versus advertising in the quarter? And I noticed that as I've been traveling as well, that prices in hotel rooms have gone quite high. And then it seems like more recently we started to see more discounting. I was just wondering if you can add a little bit of color on that too.
spk04: To answer your first question, vouchers have been or were very important during the early days of the pandemic. I would say even the first two years of the pandemic because people just couldn't travel and so they purchased the vouchers for future travel. They are less important today, a much smaller percentage of our business than they were in 2020 and 2021. Advertising revenue is now the majority of the revenue that we generate. We're a bit back to patterns what we saw in 2019, and the same is with travel behavior. So with regards to your second question, we are clearly seeing now that there are patterns of periods when hotels are busy and patterns of periods when they are less busy, and that provides us an opportunity to negotiate great deals for our members again.
spk07: You indicated that there has been an increase in the number of subscribers at Jack's Flight Club, It seems to me like maybe the effort there has been a little disappointing that we thought that maybe there would have been a little bit faster growth. And I know that maybe you've taken your foot off the accelerator of that one. But can you kind of give us your outlook for Jack's Flight Club?
spk04: Yes, you're right. It grew less in 2022 than what we were hoping for. But we also were looking for the right time to promote the service. Now airfares are very high. people are very interested in a service that provides them information about VR sales. So in 2023, we are looking at much faster growth of Jack's Flight Club compared to what we saw before.
spk07: Gotcha. And then just a final question about margins. You mentioned that the increase in the margins was due to the absence of losses in Japan, but I believe that you had made some structural changes as well, like decreases in office space and so forth. And I was just wondering, Now that you moved to more of a licensing agreement in Asia and with the structural changes that you've made, can you kind of give us your thought about what are the prospects of margin improvement and what could be the sustainable margins for the company?
spk04: You're absolutely right, Michael. It's a combination of both. We just wanted to make it clear that operating margins before the pandemic were not that much lower if we actually eliminate the investments we made in Asia-Pacific. So that was one element. And the other element is, of course, as you say, that we have changed our cost structure permanently going forward. Well, in Q4, operating margin in North America was 29%. That's actually quite good. That's before taxes, obviously, but I think we can get the entire business to that level over the long run.
spk07: Great. I'll let others ask questions. Thank you.
spk04: If there are any questions left, yes. Thanks, Michael.
spk01: Your next question will come from the line of Jim Goss with Barrington Research.
spk09: Thank you. I am curious how you would evaluate travel zoos trends right now relative to broader industry measures for hotels, airlines, and other services like Expedia that make more direct bookings. And why do you think you would lead or lag any of those particular broader trends?
spk04: So clearly coming out of the pandemic, there was pent up demand. And as we said in the last quarter, people were traveling even more than they would have without the pandemic happening. So flights were full, hotels were completely full, airlines and hotels were not even operating at the same capacity. Now they're increasing capacity. People are looking more for value. So in general, you know, when you see travel suppliers having reported relatively good numbers recently, For us, I think 2023 will be a year where we'll be doing better than 2022 just because there is more opportunity for us to do what we are best at, which is negotiating and finding offers for our members that inspire them to travel and helping travel suppliers to really fill those dates when they are not busy and the destinations where You know, there may be less known or destinations where they are less busy in lower seasons. That's what Travel Zoo is about.
spk09: So do you think you might, there might be a reason, you might lag sort of the direct placements for hotels and placement and flights, et cetera, that you would catch up now as that, you know, and maybe even at least grow as fast as some of the industry trends once that interest in travel revives?
spk04: Yes, I think that's a good description. You put that forward very well, Jim. In general, when you look back, I mean, we're a company that's been around for a long time and in periods when people are watching their wallets closer and we definitely are entering such times this year with inflation continuing to be high. and some of the money that was spread out by governments across the world, that money is evaporating. And so people are looking more for value and for deals. So I think we are better positioned, but you explained very well, Jim.
spk09: Okay, thank you. And within North America, are you noticing a difference in trends between Canada versus U.S.? ? And relative to North America vis-à-vis Europe, if Europe could be viewed as sort of a collective continent rather than a group of countries, is there more interest in international travel on this side of the pond versus that side of the pond?
spk04: No difference really between the U.S. and Canada. Between Europe and North America, also no big differences. Yes, you are right. People love to travel more now across Europe. the oceans further distances. Europe is particularly popular now for our members in the US. We clearly see that they want to go out again. They want to visit Europe. They also are now interested increasingly in Asia Pacific. And so I would just say maybe in Europe the advertisers are a little bit more cautious with coming back and advertising. But we are seeing that that is also improving.
spk09: Okay, thanks. One last question. You made a point of saying there are 30 million members. There are 7.3 million mobile app users and 4 million social media users. Could you talk about the consistency or differences among those categories in terms of the value and the economics of each?
spk04: Not really because, I mean, there's not really a big difference between them because in the end, we cater to what I explained earlier, travel enthusiasts, people who are inspired by our offers to go to places they didn't even think about. And the media, how we reach them might be different, but their interests are the same and the behavior.
spk08: All right.
spk09: Well, thank you very much.
spk08: Sure. You're welcome.
spk00: Your next question comes from the line of Ed Wu with Ascendant Capital.
spk06: Yeah, thanks for taking my question. My question is, you know, during the pandemic, a lot of travel suppliers, particularly hotels, reduced their capacity because they couldn't find labor. Has that improved? Do you see more supply coming online, especially with hotels, as the labor market improves in the U.S.? ?
spk04: Yes, not only hotels, but also airlines. They have more capacity, and also the hotels have stepped up. We see that happening more quickly in the U.S. than in Europe, just because of the differences in labor laws. But yeah, absolutely, yes.
spk06: Great. And what do you think for the summer travel season? Do you see it having as robust as it was last summer as everybody came back, or do you think that it's beginning to have more normal trends?
spk04: You have to wait and see, but it's a good question, Ed. What we see is that members are booking trips further out than they did last year. So, for example, we just had a really fantastic offer in New York and it's available for summer and a lot of our members booked already trips to New York for summer. We didn't see it quite as much last year, so people are booking trips further out, but we will have to see if people take these trips.
spk06: Great. And on the inflation front, have you seen travel suppliers able to pass on increases and the consumers willing to pay the higher prices?
spk04: Not so much a question for us because we are not a travel supplier, but from what I can see, yes, I think consumers are still accepting the higher prices. Let's see how long that lasts. I expect that that will change over the next six months.
spk06: Great. Well, thanks for answering my questions, and I wish you guys good luck. Thanks, Ed.
spk00: Our final question will come from the line of Steve Silver with Argus Research.
spk05: Hi, everybody. Thanks for taking the questions. Most of them might have been asked already, but I've got a couple left. First of all, Holder, you mentioned that this management's focus to continue to expand the member base looks to be pretty flat year over year. I'm just curious as to whether there are particular steps that can be taken to meaningfully grow the user base or the member base over the short term, or is it really just the expectation that former members will continue to return as business conditions continue to normalize?
spk04: Look, it's mostly about better explaining the value that our membership is offering to consumers. We haven't done that so well over the last two years. We're going to do it more and obviously also investing more in marketing and making the brand more known. Beyond that, I think it's just the changes in what's happening in the industry that are helping us. I think it was Michael or Ed who just mentioned that they were looking to book a hotel and it was so expensive last year. Last year, you were often happy to even find a hotel. If it wasn't booked out yet, that is changing. People are now looking more for the kind of service that we are providing and That has made us so popular among these millions of travel enthusiasts over the years. So the industry trends are just simply helping us. And you're right, in the last three years during the pandemic, we didn't grow our member base, but we're looking to change that this year.
spk05: Great. And just one basic big picture, over the last couple of years, there's been significant changes in the way both the companies operated in terms of the changing of the Asia-Pacific business, then weathering the pandemic. Well, I think there are a couple of headwinds left, maybe in terms of the higher inflation still and maybe the unfavorable currency exchange at this point. But would you say broadly that in terms of headwinds on the business that travel is fundamentals are as strong as they've been in quite some time?
spk04: Well, you saw we had a very good quarter in Q4. It was our best quarter in the last three years. We're going to have a good quarter again in Q1. And so we're very optimistic about 2023. We see that the trends that we are seeing among consumers are helping our business. We see that the trends of what we're seeing in the industry with more capacity, with more seasonal changes in seasonal patterns in demand again, All that is favoring our business, so we're very optimistic about 2023. So, yeah, we hope we'll find it back in a position where we can continue to deliver these really good operating margins that we have seen in Q4 and probably do even better.
spk05: Great. Thanks for taking the questions, and congratulations on the results.
spk04: Thank you.
spk01: I will now turn the call back over to Mr. Holger Bartel.
spk04: Well, thanks, everyone, for listening in, and we look forward to speaking with you soon again next quarter. Have a great day.
spk01: Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time. Have a nice day.
Disclaimer