Travelzoo 10-Q Summary
Business Context and Reporting Period
Travelzoo is a global Internet media company serving more than 30 million members through travel, entertainment and lifestyle publications, voucher products, digital advertising and Jack’s Flight Club subscription services. The filing covers the three and nine months ended September 30, 2022; financial statements are unaudited. Reportable segments are Travelzoo North America, Travelzoo Europe and Jack’s Flight Club. Asia Pacific remains classified as discontinued operations.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $15.8 million | $15.7 million | $52.0 million | $49.1 million |
| Gross profit | $13.5 million | $12.7 million | $44.7 million | $40.5 million |
| Gross margin | 85.3% | 80.9% | 86.0% | 82.6% |
| Operating income | $0.3 million | $(0.3) million | $4.0 million | $2.4 million |
| Net income attributable to Travelzoo | $0.8 million | $2.8 million | $4.2 million | $4.2 million |
| Diluted earnings per share | $0.06 | $0.22 | $0.33 | $0.32 |
| Cash flow from operations | Not separately provided | Not separately provided | $(20.8) million | $9.3 million |
Q3 operating margin was 1.7%, compared with negative 1.7% in the prior-year quarter. Nine-month operating margin was 7.7%, compared with 5.0%. Other income was $0.8 million in Q3 and $2.5 million for the nine months, including $494,000 of German pandemic-relief funding in Q3 and $1.7 million for the nine months, plus a $196,000 WeGo escrow gain in the nine-month period.
At September 30, 2022, cash and cash equivalents were $19.5 million, restricted cash was $1.0 million, and total assets were $68.3 million. Merchant payables were $38.2 million, primarily related to unredeemed vouchers. Operating lease liabilities totaled $10.1 million. The filing reports no outstanding debt after forgiveness and settlement of the PPP loans.
Material Changes Versus the Prior Comparable Period
- Revenue increased 1.0% in Q3 and 6.0% for the nine months. North America revenue increased 8.6% in Q3 and 3.3% for the nine months, while Europe revenue declined 13.9% in Q3 but increased 13.4% for the nine months. Jack’s Flight Club revenue increased 6.4% in Q3 and 3.1% for the nine months.
- Travelzoo Travel revenue increased modestly, driven by higher Top 20 and Newsflash advertising, but Getaways voucher revenue declined. Local revenue increased in North America but declined in Europe.
- Gross margin improved primarily because of lower credit-card fees, software-license costs, network expenses and customer-service costs associated with reduced voucher sales.
- Sales and marketing expense increased 10.4% in Q3 and 17.1% for the nine months, reflecting higher marketing and member-acquisition spending. Advertising expenses represented 25% of sales and marketing expense in Q3 versus 17% in the prior-year quarter.
- Operating income improved despite lower Q3 other income. Prior-year other income included approximately $3.2 million of PPP-loan forgiveness; 2022 included German government funding instead.
- Cash, cash equivalents and restricted cash declined $24.4 million from December 31, 2021, primarily because of $20.8 million of operating cash use, a $28.9 million decrease in merchant payables and $3.3 million of foreign-exchange effects.
- Travelzoo acquired member databases and related assets in Spain and from Metaverse Travel Experiences, a related party controlled by the Company’s largest shareholder. The transactions resulted in approximately $2.2 million of intangible assets.
Guidance, Outlook, Risks and Unusual Items
Management expects revenue and net income to increase during the remainder of 2022 based on improving travel conditions. Management also expects cash on hand as of September 30, 2022 to fund working-capital needs for at least the next twelve months, based on projected voucher redemptions. No formal quantitative revenue or earnings guidance was provided.
Management disclosed conditions that could raise doubt about the Company’s ability to meet obligations over the next twelve months, including negative working capital of $17.4 million, $20.8 million of operating cash use and $38.2 million of merchant payables. Management concluded that cost controls, revenue growth and potential additional financing alleviate going-concern concerns, but financing may not be available on acceptable terms.
- Most vouchers expire between October 2022 and December 2025, with the majority expiring in 2023. Accelerated redemptions could materially pressure liquidity.
- Approximately $9.6 million of unredeemed vouchers represented Travelzoo’s earned commissions, with a $1.9 million estimated refund liability. Changes in refund behavior, merchant financial condition or voucher redemption patterns could reduce revenue or increase costs.
- Travel and hospitality advertisers remain exposed to COVID-19 developments, inflation, oil prices, travel-supply constraints, political instability, currency volatility and changes in consumer demand.
- Foreign-currency translation produced a $1.6 million comprehensive loss for the nine months and reduced accumulated other comprehensive equity.
- The Company had approximately $1.5 million of unrecognized tax benefits and accrued interest and penalties, and approximately $2.8 million of supplier purchase commitments.
- The Company repurchased 200,000 shares for $1.2 million during Q3 under a new authorization, with 800,000 shares remaining.
- Ralph Bartel, the Chairman and controlling shareholder of Azzurro Capital, owned approximately 36.3% of outstanding shares. CEO Holger Bartel, his brother, owned approximately 4.2%.
Important Facts for Investors to Verify
- Whether voucher redemptions and merchant-payable settlements remain consistent with management’s liquidity projections.
- Whether advertising growth, particularly Top 20 and Newsflash revenue, offsets continued declines in Getaways and Local voucher activity.
- Whether higher member-acquisition and marketing spending produces sustainable member and revenue growth.
- The availability, cost and potential dilution or restrictive terms of any future equity, debt or credit financing.
- The terms, valuation and governance safeguards for the related-party Metaverse asset acquisition.
- The impact of foreign-exchange movements, tax matters, refund estimates and potential renewed travel restrictions on future results.