Q4 2023 Travelzoo Earnings Call
Participants
Lijun Qi; Acting Chief Accounting Officer; Travelzoo
Holger Bartel; Global CEO; Travelzoo
Christina Ciocca; General Counsel and Head of Global Functions; Travelzoo
Michael Kupinski; Analyst; Noble Capital Markets Inc
Jim Goss; Analyst; Barrington Research Associates Inc
Steve Silver; Analyst; Argus Research Corp
Ed Woo; Analyst; Ascendiant Capital Markets LLC
Presentation
Operator
Hello, everyone. Welcome to the Travelzoo fourth quarter 2023 financial results conference call. (Operator Instructions) 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 SEC filings. 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 today. An archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir.
Now it's my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel [it's chair]; General Counsel, Head of Global Functions, CEO of ack's Fight Club, Christina Ciocca; and finance director Lijun Qi.
Lijun will start us with an overview.
Lijun Qi
Thank you, operator, and welcome to those of you joining us today, please 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/ir.
Let's begin with Slide number four. Services revenue, operating profit and member count all increased at year over year. Our consolidated Q4 revenue was $21.1 million, up 14% from $18.6 million in the prior year period. In constant currency, revenue was $20.8 million, an increase of 12% year over year. Operating income which we, as management called operating profit, increased 25% year over year.
Q4 operating profit was $4.5 million or 21% of revenue, up from $3.6 million in the prior year. As of December 31st, 2023, we had $31.1 million unduplicated members compared to $30.4 million as of December 31st, 2022.
Slide 5 shows that strong revenue growth continued in our Europe segment and at Jack's Flight Club.
On Slide 6, we go into more detail about the revenues and operating profit of our two largest business segments, North America and Europe.
North America, Q4 segment revenue increased 5% year over year to $13.8 million from the prior year period. Operating profit in North America was $4.0 million in Q4 compared to an operating profit of $4.2 million a year ago. Europe, Q4 segment revenue increased 34% year over year to $6.3 million from $4.7 million in the prior year period. Europe had an operating profit of 832,000 in Q4 compared to an operating profit of 42,000 in the prior year period.
On slide 7, you can see that our GAAP operating margin was 21% in Q4, up from 19% year over year.
Slide 8 shows that in North America, the GAAP operating margins remain high at 29%.
On Slide 9, we provide information on non-GAAP operating profit as we believe it better explains how Travelzoo's management evaluate financial performance for 2023. Non-gaap operating profit was $5.2 million or 25% of revenue compared to non-GAAP operating profit of $4.8 million in the prior year period.
Slide 10 provides more information about the items that are excluded in the calculation of non-GAAP operating profit.
Please turn to Slide 11. We maintained a solid cash position even after repurchasing 600,000 travel to shares during the quarter. As of December 31st, 2023. Consolidated cash, cash equivalents and restricted cash was $16.4 million, a decrease of $3.0 million from December 31st, 2022. Comparably merchant payables, which are future payments that we have to make to partners when Walters redeemed decreased by $10.7 million over the same period.
Slide 12 and 13 detail our revenues by business segment in North America business segment saw a year-over-year revenue increase of 5% to $13.8 million. This was driven by revenue from travel revenues from local, consisting of local entertainment experiences. I still expect to recover from the pandemic
Into Slide 13. The Europe business segment saw a year-over-year revenue increase of 34% to $6.3 million. This was driven by particular strength in travel side, 14 show how revenues compared to operating expenses. Most of the Company's operating expenses except for marketing are relatively fixed in the short to midterm, we believe we can keep fixed costs contained in the foreseeable future.
While revenues are expected to grow, higher revenues will just increase operating margins for Q1 2024, we expect continued growth in revenue, albeit at a reduced pace from 2023. We expect a high cash flow from operating activities and a high profitability.
We plan to continue our outstanding share repurchase program. In December 2023, we announced the introduction of a membership fee for Travelzoo beginning January first, 2024, existing members as of 20 at December 31st, 2023, exempt from the fee due in 2024. Therefore, we do not anticipate generating membership fee revenue from existing members before 2025.
Now I'll turn the discussion over to Holger.
Holger Bartel
Thank you, Lijun. Q4 concluded a strong year for Travelzoo with each quarter, achieving year-over-year revenue growth, profitability and positive cash flow from operations. We will continue to leverage Travelzoo's Global reach our trusted brand and strong relationships with top travel suppliers to negotiate more exclusive offers for our members in times of large increases in travel prices that Travelzoo is most valuable for consumers. Travelzoo members enjoy high-quality travel experiences that represent outstanding value. With more than 30 million members, 8 million mobile app users and 5 million social media followers. Travelzoo is loved by travel enthusiasts who are affluent active and open to new experiences.
Slide 15 provides more information about Travelzoo members, 91% say they are open to new destinations and travel ideas. We are indeed the club of travel enthusiasts.
Slide 17 provides an overview of what management and our global team are focused on. We want to grow the number of Travelzoo members, leverage our strong existing relationships with top travel suppliers and add new relationships to negotiate more exclusive offers, utilize higher operating margins to increase EPS, grow check flight clubs revenue and develop Travelzoo eMeta with discipline.
At this point, I'd like to turn it over to Christina for a quick update on Jack's Flight Club and travel to meta.
Christina Ciocca
Thank you, Holger. Nestle club had a strong year in 2023 closing Q4 with a 29% increase in revenue year over year and a 21% increase in premium members in 2024. We are excited to keep up this momentum with continued investment in member growth, including in new markets like Canada, implementation of an inflationary price increase for new members and further refinement of our about value proposition, all of which we believe will help us define better marketing, marketing efficiencies and grow profitably.
Now I'd like to speak about Travelzoo Meta, exciting news from travel eMeta that we are close to producing the first metaverse travel experience. It will be browser enabled we expect to bring that experience and more new immersive travel experiences to founding members of Travelzoo meta on the new travel, the meta, as stated in previous earnings calls, we are conscious of developing challenging data and a financially disciplined way. We will provide additional it's in due time.
Now I'm handing over to the operator for questions for Holger, Lijun, and myself Thank you.
Question and Answer Session
Operator
The floor is now open for questions. (Operator Instructions)
Michael Kupinski, Noble Capital.
Michael Kupinski
Thank you, and thank you for taking the questions and congratulations on good fourth quarter and a strong 2023. I just had a couple of questions here. You indicated that there seems to be in 2023. There was this pent-up demand for people willing to travel following the pandemic. I think that's what you said. What are the dynamics that you're seeing, especially in North America? Because obviously we didn't we saw slower growth there versus Europe, which has continued quite strong. Can you just kind of give us the dynamics or what's happening between those two continents?
Hello?
Operator
Least yourself on you. Please go ahead now.
Michael Kupinski
Were they able to hear my questions? So I was just asking about the pent-up demand for people traveling. You know what I know that in 2023, we had the kind of people pent-up demand for following the pandemic. What are we seeing now versus North America and Europe? What are the dynamics at play here?
Lijun Qi
Holger your line working?
Hello, Michael.
Holger Bartel
Hello, Michael. So it looks like there was a technical difficulty, but I could hear you.
Okay. Speaking about the industry, it looks like 2024 will be another strong year for travel, not quite as strong as 2022 and 23. As you said, the pent-up demand is slowly ebbing. We are hearing from our partners that in North America, bookings from the partners are good. Europe may be a little bit less, and that might have to do with the wars that are going on in Ukraine and in Gaza, Israel. So overall, probably still a positive year. Overall, we are seeing stronger growth in Europe, as you saw, growth in North America slowing down a bit, but in general should be a similar year than before.
Michael Kupinski
So do you anticipate that North America is going to pick up the pace a little bit? Or do you think that that that you're anticipating that North America will lag Europe again in 2024?
Holger Bartel
Europe is finally catching up as we expected. So we are very happy to see that North America indeed was a little bit slower in Q4. And the reason for that was that a couple of advertisers were just becoming cautious a bit more cautious because of the awards that I just spoke about. I think this is just a temporary situation. So we will see how the rest of 2024 will develop the optimistic catch-up.
Michael Kupinski
And then it seems in 2023 that you've throttled back a little bit on your sales and marketing spend. I think it was like 45% of revenues. It was 47% in 2022. Can you talk a little bit about your outlook for sales and marketing spend in 2024?
Holger Bartel
In Q4, our marketing spend tends to be a bit lower because we don't see it as a good quarter or environment for advertising travel, of course, for 2024, I cannot really comment much because now move to a paid membership model. So it's really our thinking. But I'm really not able right now to predict what we will see in 2024 again.
Michael Kupinski
And in general, do you anticipate that that will adversely affect margins as you kind of move towards a more of a paid subscription model? Or what are your thoughts in general?
Holger Bartel
So I really cannot comment right now, maybe next quarter, we will know more. But right now I can't I just can't comment on that.
Michael Kupinski
Okay. Fair enough. And I believe that I know the answer to this question, but I will ask it anyway. The merchant liabilities came down dramatically about $12 million and was up relatively the cash was relatively stable. Can you just kind of give us. What are the dynamics going on right now to account for that? And I know that you've indicated in the past that there were some of these merchant liabilities. I probably want to use. But I was just wondering if you can just kind of give us an idea of what the dynamics are there?
Holger Bartel
Thank you. We are very happy with the improvements of the balance sheet and the expected merchant payables will normalize around the level of where they are right now and where they have been before the pandemic.
Michael Kupinski
And that's all I have for now. Thank you.
Holger Bartel
Sure. You're welcome, Michael.
Operator
Jim Goss, Barrington Research.
Jim Goss
Good morning. I was wondering what sort of experience you've had so far since you've gone to a paid model, have you been attracting sign-ups? And do you have any expectations for the take rate for the existing subs becoming paid subscribers? And how you might treat the existing subs to choose not to I think you've talked in the past about maybe giving them occasional e-mails or something of that nature. But I wonder if you may have fleshed out that strategy it out.
Holger Bartel
Hi, Jim. Yes, we do see, of course, sign-ups of paid members members who are paying the membership fee and the number is a bit higher than what we anticipated. So we're happy about that. But in general, it's just too early for me to provide a lot of comment. I hope I can provide more next quarter. But right now, I'm just not able to provide a lot of comments on this.
Jim Goss
Okay. And I know noticed the dress like club had a little bit of a step-up to I wonder if you might talk about your promotional plans for continuing that process and gaining some share in greater subscriber base for magazines?
Holger Bartel
Yes, we're happy how this develops. Christina can answer your question.
Christina Ciocca
And so in 2024, we're looking to add a couple of additional promotional activities and sales. We typically have one in January and one in July and one in November, and you're thinking to add one or two additional to see how that does over the course of the year, we tried to obviously spaced them out. So we don't cannibalize ourselves with each of the sales. We're also, as I mentioned, looking to expand into into new markets. Our first will be Canada and we're looking forward to seeing the metrics and numbers for that new market. We anticipate that we'll find kind of better marketing efficiencies there, which will allow us to Crown value about half of the blades.
Jim Goss
And maybe my final question, to the extent that you now have this subscription plans for both the core service and Jack's Flight Club, is there any thinking about potentially and creating it if I do kind of like a combination membership where someone might be able to get the same discount and the sum of both of them and then gain gain access to both navigate pickup subscriber base that way?
Holger Bartel
Yes, it's a great idea, Jim. We don't reject, but we are looking into it for the future. Very good idea, of course.
Jim Goss
Okay. I'll leave it go at that for now. Thanks.
Holger Bartel
Steve Silver, Argus Research.
Steve Silver
Thank you. Operator, and congratulations to everybody on the strong results in Europe and the return to profitability there. It's great to see. My question is also about the Yum. Back now I hope you had mentioned a little while ago that there might be some near term softness, particularly in North America as a result of the conflicts in the wars going on both in Ukraine and now in Israel and the Middle East.
Just trying to get a sense as to the timing of your announcement of the membership model. I know you've spoken about it over the past several years since the Jack's Flight Club acquisition was first announced that the Company would be looking to move towards a subscriber model over time, given the fact that there is just a lot of turmoil in certain regions around the world. I was just wondering if there's any insight you could share in terms of the thought process as to moving to the membership fee now as compared to possibly just seeing how the global situation unfold over time?
Holger Bartel
51 is not really related to the auto at all in fact, as I said, we saw a couple of advertisers have become a bit more cautious because of the wars in Ukraine and Israel. However, we still see strong demand and interest from our members in this in January and traveling. So it didn't really affect our decision and we're very happy that we made the decision to move to this new our paid model so far, we are up. Yes, we are they are really fine with the timing. So I didn't have any I didn't really see a connection of the two.
Steve Silver
Okay. That's helpful. And then just one more. I know you had mentioned the share repurchases and that you expect that to continue moving forward. And just the concept that you've spoken about over time in terms of meta being grown very diligently and with discipline, I'm just going to get a sense as meta does ramp up on, do you expect to be able to grow meta to where you wanted to go while maintaining modest investment levels? Or would you expect that at the appropriate time there would be more resources put into meta to eventually grow that unit to where you wanted to be?
Holger Bartel
It's the first. We have always said we want to manage it and to do it financially in a prudent manner. And we will continue to do so we are generating good cash flow. So that's why we are planning to complete our share repurchase share repurchase program.
Steve Silver
Okay. Thanks for the color and congratulations.
Holger Bartel
Thanks, Steve.
Operator
Ed Woo, Ascendiant.
Ed Woo
Congratulations on the quarter. Two areas in the travel industry that's growing really rapidly as alternative accommodations as well as on bookings for activities. Can you talk about how you guys are trying to be active in that based?
Holger Bartel
It was not an area that we actually did much in the past, but now that we are up and we are paid membership modules, we are speaking with some companies about partnerships in the future. So we are better positioned now to I've entered this conversation. So thanks for asking this, Ed.
Ed Woo
Great. That's all the questions I have. I wish you guys. Good luck. Thank you.
Holger Bartel
Thank you.
Operator
I'll now turn the call over back to Mr. Holger Bartel investors.
Holger Bartel
Thank you so much for your time and support today, and we look forward to speaking with you again, next quarter. Have a great day.
Operator
Thank you ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time and have a nice day.
