Travelzoo 10-Q Summary
Business Context and Reporting Period
Travelzoo provides travel, entertainment and lifestyle deals through websites, mobile applications, email publications and its Travelzoo Network. Revenue is generated primarily from advertising fees, with additional transaction-based revenue from vouchers and hotel bookings. The filing covers the three and nine months ended September 30, 2018, compared with the corresponding 2017 periods. Search products Fly.com and SuperSearch were discontinued in the first quarter of 2017.
Travelzoo reported approximately 29.8 million members at September 30, 2018, up from 29.5 million at September 30, 2017. Azzurro Capital, controlled by founder Ralph Bartel, owned approximately 52.4% of outstanding shares.
Financial Performance and Liquidity
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $25.3 million | $24.7 million | $84.3 million | $79.5 million |
| Gross profit | $22.3 million | $21.7 million | $74.9 million | $70.1 million |
| Gross margin | 88.2% | 87.8% | 88.9% | 88.1% |
| Operating income | $0.7 million | $0.02 million | $5.4 million | $3.5 million |
| Operating margin | 2.8% | 0.1% | 6.5% | 4.4% |
| Net income | $0.1 million | $(0.6) million | $3.1 million | $2.9 million |
| Net margin | 0.5% | (2.3)% | 3.7% | 3.6% |
| Basic EPS | $0.01 | $(0.05) | $0.25 | $0.22 |
- Revenue increased 2.5% year over year in Q3 and 6.0% in the first nine months.
- Travel revenue increased to $21.5 million in Q3 and $72.4 million in the first nine months; Local revenue was essentially flat at $3.8 million and increased modestly to $11.9 million, respectively.
- Q3 sales and marketing expense declined $0.6 million, while general and administrative expense increased $0.6 million, including higher bad debt and professional service costs.
- Operating cash flow was $36,000 in the first nine months, compared with cash used of $1.9 million in the prior-year period.
- Cash and cash equivalents were $15.8 million at September 30, 2018, down from $22.6 million at December 31, 2017. Cash, cash equivalents and restricted cash totaled $17.2 million.
- Current assets were $30.8 million versus current liabilities of $23.6 million. The filing does not report conventional borrowings or debt balances.
- Cash outflows included a $3.1 million investment in WeekenGO and $2.9 million of share repurchases. The Company held a 25% equity-method interest in WeekenGO.
Material Changes Versus the Prior Comparable Period
- Profitability improved materially: Q3 operating income rose from $18,000 to $714,000, and net income improved from a $576,000 loss to $118,000 of income.
- First-nine-month operating income increased 57% to $5.4 million, primarily reflecting revenue growth and improved operating leverage.
- Europe was the primary improvement area, with Q3 operating profit increasing to $0.9 million from $0.3 million and nine-month operating profit increasing to $3.3 million from $1.5 million.
- North America revenue was flat in Q3 but increased 4% for the first nine months; its nine-month operating profit increased to $6.9 million from $6.3 million.
- Asia Pacific remained materially loss-making, with a nine-month operating loss of $4.8 million versus $4.4 million in 2017.
- The prior-year nine-month results included $1.9 million of after-tax discontinued-operation income, including the $2.9 million gain from selling the Fly.com domain name. No discontinued-operation income was recorded in 2018.
- Revenue recognition changed in 2018 under ASC 606, including estimated recognition of certain unredeemed vouchers. Adoption increased retained earnings by approximately $1.3 million at January 1, 2018; the reported Q3 impact was not material.
Guidance, Outlook, Commentary and Risks
Management did not provide specific financial guidance. Management expects cash on hand to fund working capital needs for at least the next twelve months, while noting that investments, slower-than-expected business performance or unexpected opportunities could require additional financing or operating reductions.
- Management expects continued investment in the hotel booking platform, mobile products, packaging technology, international expansion and audience acquisition. These investments may increase costs before producing incremental revenue.
- Local Deals and Getaway remain exposed to competition, declining voucher demand, refund rates and lower merchant take rates.
- Revenue depends heavily on advertiser retention, audience growth, email engagement, online advertising demand and the ability to compete with large travel, search and deal platforms.
- Asia Pacific continues to generate operating losses, and foreign exchange movements affect reported results.
- Tax expense remains volatile because of geographic income mix, uncertain tax positions, international tax rules and the provisional accounting for the Tax Cuts and Jobs Act.
- Operating lease and purchase commitments totaled $18.4 million at September 30, 2018, including $18.1 million of net operating lease commitments.
- The Company continued a voluntary cash-payment program for certain former Travelzoo.com Corporation promotional shareholders. The ultimate cost cannot be reliably estimated and depends partly on future share price and valid claims.
- Other risks include data privacy and cybersecurity, payment processing, regulatory and tax changes, email deliverability, technology outages, litigation, competition, mobile adoption and the controlling stockholder's influence.
Most Important Facts to Verify
- Whether revenue growth and operating profitability can continue after the benefit of lower Q3 acquisition spending and improved European performance.
- Whether Asia Pacific can reduce its recurring operating losses without materially increasing cash usage.
- The returns, funding requirements and commercial relationship associated with the 25% WeekenGO investment and its advertising commitment.
- The effect of hotel-platform expansion, package offerings, mobile investment and the transition toward commission-based hotel revenue.
- Future cash requirements from operating commitments, share repurchases, tax contingencies and the unquantifiable former-stockholder payment program.
- Whether the company’s $15.8 million of cash, including $10.8 million held outside the United States, remains sufficient under adverse operating scenarios.