Travelzoo 10-Q Summary: Second Quarter 2021
Business Context and Reporting Period
Travelzoo is a global Internet media company providing travel, entertainment, lifestyle and local deals to more than 30 million members. Revenue is generated primarily from advertising and transaction-based fees, with additional subscription revenue from Jack’s Flight Club. The filing covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Asia Pacific operations remain classified as discontinued operations following the 2020 exit.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $19.1 million, compared with $7.0 million | $33.4 million, compared with $27.3 million |
| Gross profit | $16.6 million; 86.8% margin | $27.8 million; 83.4% margin |
| Operating income (loss) | $3.5 million, compared with $(6.6) million | $2.7 million, compared with $(12.0) million |
| Income from continuing operations attributable to Travelzoo | $3.0 million, compared with $(5.4) million | $1.4 million, compared with $(9.1) million |
| Net income (loss) attributable to Travelzoo | $3.0 million, compared with $(6.2) million | $1.4 million, compared with $(12.8) million |
| Diluted earnings (loss) per share | $0.22, compared with $(0.55) | $0.10, compared with $(1.13) |
| Operating cash flow | Not separately provided for the quarter | $22.0 million, compared with $13.4 million |
Sales and marketing expense was $7.3 million in the quarter and $14.1 million year to date. Product development expense was $685,000 in the quarter and $1.4 million year to date. General and administrative expense was $5.1 million in the quarter and $9.6 million year to date. Other income included a $429,000 gain from partial forgiveness of a PPP loan.
Cash and cash equivalents were $81.0 million at June 30, 2021, up from $63.1 million at December 31, 2020. Total cash, cash equivalents and restricted cash were $82.2 million. Working capital was negative $12.7 million, primarily because of $82.2 million of merchant payables related to unredeemed vouchers.
At June 30, 2021, the Company had $3.1 million of PPP debt outstanding and no other material debt described in the filing. The remaining PPP principal and interest were forgiven on July 1, 2021, with the gain expected to be recorded in the third quarter.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased $12.1 million, or approximately 172%, primarily from recovery in travel-related advertising and higher Getaways voucher sales.
- Six-month revenue increased $6.0 million, or approximately 22%.
- North America quarterly revenue increased $9.8 million to $14.0 million, while six-month revenue increased $6.9 million to $23.8 million.
- Europe quarterly revenue increased $2.4 million to $4.2 million, but six-month revenue decreased $992,000 to $7.8 million because of lower publishing and website advertising revenue.
- Jack’s Flight Club quarterly revenue decreased $85,000 to $860,000, while six-month revenue increased to $1.7 million from $1.6 million for the comparable post-acquisition period.
- Consolidated operating performance improved substantially as 2020 included $2.9 million of goodwill and intangible-asset impairment charges, unusually high stock-based compensation and significant pandemic-related losses.
- Gross margin improved to 86.8% for the quarter from 69.4%, while the six-month margin improved to 83.4% from 82.3%.
- Operating cash flow increased $8.5 million year over year, driven substantially by a $25.2 million increase in merchant payables, partially offset by higher accounts receivable and prepaid expenses.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal revenue or earnings guidance. Management expects cash on hand at June 30, 2021 to fund working-capital needs for at least twelve months based on projected voucher-redemption activity, but states that accelerated redemptions or a return to operating losses could require additional financing.
- COVID-19 and travel-industry conditions remain significant risks. Advertiser cancellations, travel restrictions, partner failures, voucher refunds and reduced demand could adversely affect revenue and liquidity.
- Approximately $20.5 million of unredeemed vouchers were outstanding at June 30, 2021, with a related estimated refund liability of $3.7 million. Voucher maturities begin in July 2021 and extend through December 2023.
- Merchant payables are generally due when vouchers are redeemed, creating potential liquidity pressure if redemptions accelerate.
- The Company had approximately $3.6 million of supplier purchase commitments, operating lease liabilities with a present value of $14.1 million, and approximately $1.2 million of unrecognized tax benefits including interest.
- Future tax rates may fluctuate materially because of geographic income mix, stock-based compensation limitations, uncertain tax positions and tax audits.
- The Company maintains a voluntary program for certain former Netsurfers promotional shareholders. Future payments cannot be reliably estimated and depend on valid claims and the stock price.
- A related-party license agreement with Azzurro Brands, an affiliate of the largest shareholder, requires quarterly payments of $413,000. Travelzoo paid $894,000 upon execution and $701,000 in the second quarter for future coverage.
- Travelzoo repurchased 100,000 shares from its Global Chief Executive Officer for approximately $1.6 million in the first quarter. The transaction was approved by the Compensation Committee with independent legal and financial advice.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the post-pandemic recovery in travel advertising and Getaways voucher sales continues, particularly in Europe.
- Voucher redemption, refund and merchant-payable trends, including the impact on operating cash flow and working capital.
- The timing and accounting impact of the July 1, 2021 forgiveness of the remaining $3.1 million PPP loan.
- Jack’s Flight Club subscriber levels, revenue trajectory and the potential 2022 put/call arrangement tied to EBITDA and net income thresholds.
- The sustainability of profitability after excluding 2020 impairment charges, PPP forgiveness and other unusual comparability items.
- Future stock-based compensation, dilution and related-party transactions, including the Azzurro Brands license agreement.