Travelzoo 2021 Q1 Form 10-Q Summary
Business Context and Reporting Period
Travelzoo is a global Internet media company offering travel, entertainment and lifestyle deals through digital publications, websites, applications and voucher products. Jack’s Flight Club provides paid flight-deal subscriptions and had approximately 1.6 million subscribers at March 31, 2021. The unaudited results cover the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Asia Pacific was classified as discontinued operations beginning in the first quarter of 2020 following the decision to exit that business. Continuing operations comprise Travelzoo North America, Travelzoo Europe and Jack’s Flight Club.
Financial Performance and Position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $14.3 million | $20.3 million | Down 29.7% |
| Gross profit | $11.3 million | $17.6 million | Down 36.1% |
| Gross margin | 78.9% | 86.7% | Down 7.8 percentage points |
| Operating loss | $0.8 million | $5.3 million | Improved by $4.6 million |
| Loss from continuing operations | $1.7 million | $4.8 million | Improved by $3.2 million |
| Net loss attributable to Travelzoo | $1.6 million | $6.6 million | Improved by $5.0 million |
| Basic loss per share | $0.14 | $0.58 | Improved by $0.44 |
| Net cash provided by operating activities | $9.1 million | $(3.1) million | Improved by $12.1 million |
Sales and marketing expense declined to $6.8 million from $13.1 million, product development expense declined to $0.7 million from $1.4 million, and general and administrative expense declined to $4.6 million from $5.5 million. The prior-year period included $2.9 million of impairment charges for goodwill and intangible assets; no impairment was recorded in Q1 2021.
Cash and cash equivalents were $70.9 million at March 31, 2021, compared with $63.1 million at December 31, 2020. Cash, cash equivalents and restricted cash totaled $72.1 million. Operating cash flow benefited substantially from a $13.2 million increase in merchant payables associated with unredeemed vouchers.
Working capital was negative $17.0 million, principally because of $70.1 million of merchant payables. The company had $3.7 million of PPP loans outstanding, consisting of $3.5 million current and $0.2 million long-term. The company had applied for forgiveness, but no forgiveness had been granted as of March 31, 2021. Operating lease liabilities totaled $14.4 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of pandemic-related reductions in travel advertising, hotel and entertainment commissions, and Local Deals activity.
- Travelzoo North America revenue fell to $9.8 million from $12.7 million, while Europe revenue fell to $3.6 million from $6.9 million. Jack’s Flight Club revenue increased to $0.9 million from $0.7 million; the 2020 comparison reflects only the period beginning with its January 13, 2020 acquisition.
- Travel revenue declined to $12.3 million from $17.4 million, while Local revenue declined to $1.1 million from $2.3 million. Getaways voucher sales increased in both North America and Europe, partially offsetting declines in other travel products.
- North America reached an operating profit of $39,000 versus a $1.0 million operating loss; Europe remained at an operating loss of $0.7 million; Jack’s Flight Club reduced its operating loss to $0.1 million from $3.0 million.
- The company repurchased 100,000 shares from its Global Chief Executive Officer for $1.6 million, or $15.83 per share, in March 2021. The shares were recorded as treasury stock and were separate from the public repurchase program.
- Stock-based compensation increased materially, contributing $0.9 million to operating expenses in Q1 2021, compared with $23,000 in Q1 2020.
- In March 2021, the company entered into a related-party license agreement with Azzurro Brands for access to 2.2 million subscribers. The agreement requires a fee of $413,000 per quarter and an initial payment of $894,000, which was paid during the quarter.
Outlook, Risks, Contingencies and Unusual Items
Management expects cash on hand to satisfy working-capital requirements for at least the next twelve months based on projected voucher redemption activity. However, accelerated redemptions, continued operating losses or adverse pandemic developments could require additional financing, and financing may not be available on acceptable terms.
The COVID-19 pandemic continued to reduce advertiser spending, travel demand, hotel and package bookings, and voucher activity. The company expanded its refund policy for certain vouchers. At March 31, 2021, unredeemed vouchers represented approximately $18.6 million of commission earned, with a $4.0 million estimated refund liability. Voucher expiration dates range from April 2021 through June 2023, creating potential variability in cash requirements and merchant settlements.
Management stated that, other than the PPP loans, it had no outstanding debt and did not currently anticipate needing additional debt or equity capital in the ordinary course. The filing also identifies risks from competition, member acquisition costs, advertiser retention, changing consumer behavior, technology and cybersecurity, foreign currency movements, tax uncertainty and litigation.
Purchase commitments totaled approximately $4.5 million at March 31, 2021. Unrecognized tax benefits were approximately $821,000, with accrued interest and penalties bringing related contingencies to approximately $1.1 million. The company also continues a voluntary cash program for certain former Netsurfers promotional shareholders; its ultimate cost cannot be reliably estimated.
Management reported effective disclosure controls and procedures and no material changes in internal control over financial reporting during the quarter.
Most Important Facts to Verify
- Whether travel advertising and transaction demand recover sufficiently to restore revenue growth and improve margins.
- Whether voucher redemptions and refund claims accelerate, creating additional cash needs beyond current projections.
- The ultimate amount and timing of PPP loan forgiveness and any remaining repayment obligations.
- The sustainability of operating cash flow, particularly the extent to which Q1 cash generation depended on the $13.2 million increase in merchant payables.
- The financial impact, governance terms and renewal economics of the related-party Azzurro Brands subscriber license.
- Potential dilution and compensation expense from approximately $4.1 million of disclosed unrecognized stock-based compensation, based on the amounts described in the filing.