Travelzoo 10-Q Summary: Second Quarter 2022
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. Travelzoo is a global internet media company generating revenue primarily from advertising, travel and local vouchers, hotel bookings, and Jack’s Flight Club subscriptions. Reportable segments are North America, Europe, and Jack’s Flight Club. Asia Pacific is presented as discontinued operations.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $17.7 million | $19.1 million | $36.1 million | $33.4 million |
| Gross profit | $15.5 million | $16.6 million | $31.1 million | $27.8 million |
| Gross margin | 87.8% | 86.8% | 86.2% | 83.4% |
| Operating income | $1.8 million | $3.5 million | $3.7 million | $2.7 million |
| Operating margin | 10.1% | 18.2% | 10.2% | 8.1% |
| Net income attributable to Travelzoo | $1.0 million | $3.0 million | $3.4 million | $1.4 million |
| Diluted earnings per share | $0.08 | $0.22 | $0.27 | $0.10 |
Q2 revenue declined 7.3% year over year, while six-month revenue increased 8.3%. Six-month results benefited from higher advertising and publishing revenue, a $1.2 million German COVID-relief grant, and a $196,000 escrow recovery from the prior WeGo investment sale. The quarter did not include a comparable benefit from PPP loan forgiveness recorded in Q2 2021.
Revenue and Segment Performance
- North America: Q2 revenue was $12.4 million, down from $14.0 million, primarily because Getaways revenue fell $3.5 million. Six-month revenue was $24.1 million, up modestly from $23.8 million.
- Europe: Q2 revenue was $4.4 million versus $4.2 million; six-month revenue was $10.3 million versus $7.8 million. Higher Top 20, Newsflash, and hotel commission revenue was partly offset by lower Getaways and Local revenue and foreign-currency effects.
- Jack’s Flight Club: Q2 revenue increased to $952,000 from $860,000, and six-month revenue increased to $1.8 million from $1.7 million. Subscribers totaled approximately 1.8 million at June 30, 2022.
- Operating profitability: North America generated $3.1 million of Q2 operating profit, Europe reported a $1.5 million operating loss, and Jack’s Flight Club generated $161,000 of operating profit. Europe’s loss widened primarily because of increased member-acquisition spending.
Cash Flow, Liquidity, Debt, and Balance Sheet
- Cash and cash equivalents were $25.6 million at June 30, 2022, down from $43.8 million at December 31, 2021. Total cash, cash equivalents, and restricted cash were $26.7 million.
- Operating cash flow was negative $17.0 million for the six months, compared with positive $22.0 million in the prior-year period. The principal driver was a $19.8 million reduction in merchant payables.
- Investing cash outflow was $1.0 million, primarily for intangible assets. Financing cash inflow was $1.9 million from stock-option exercises.
- Merchant payables were $47.9 million, primarily related to unredeemed vouchers. Because these amounts are classified as current, reported net working capital was negative $17.2 million.
- Management expects cash on hand to cover working-capital needs for at least twelve months based on projected voucher-redemption activity, but states that accelerated redemptions, weaker profitability, or lower operating cash flow could require additional financing.
- The filing reports no outstanding conventional debt at June 30, 2022. PPP loans were forgiven or repaid previously. Operating lease liabilities totaled $10.7 million.
- Stockholders’ equity improved to $1.4 million from a deficit of $4.2 million at year-end, primarily due to retained earnings and stock-option exercises.
Material Changes and Unusual Items
- Sales and marketing expense increased 15.5% in Q2 and 20.8% for the six months, driven primarily by higher member-acquisition costs.
- Cost of revenues declined, producing higher gross margins, while higher marketing expense reduced Q2 operating margin.
- The company acquired the Spanish Secret Escapes business and certain U.S. member assets in March 2022, recording approximately $2.2 million of intangible assets. The related-party transaction with Metaverse Travel Experiences involved a $1.75 million purchase price, including $600,000 paid in cash and $1.15 million credited against prepaid license fees.
- Travelzoo’s board approved a new repurchase authorization for up to one million shares in June 2022; no shares had been repurchased under the program as of June 30.
- Foreign-currency translation losses were $602,000 in Q2 and $740,000 for the six months, reducing comprehensive income.
Guidance, Outlook, and Risks
Management expects revenue and net income to increase during the remainder of 2022 as travel conditions improve. The filing does not provide formal numerical revenue or earnings guidance.
- Travel and hospitality advertisers remain exposed to pandemic-related restrictions, reduced demand, cancellations, and broader economic conditions.
- Voucher obligations and redemption timing are significant liquidity considerations. Most outstanding vouchers expire by the end of 2022 or during 2023, although expiration dates may be extended.
- The company may need equity or debt financing if voucher redemptions accelerate or operating performance weakens; availability and terms are uncertain, and equity financing could dilute shareholders.
- Revenue and refund reserves depend on estimates of voucher redemptions, cancellations, breakage, and merchant financial condition. Changes in these estimates could materially affect revenue and cash flow.
- Europe remains loss-making, and increased member-acquisition spending may not produce proportional revenue growth.
- Unrecognized tax benefits and related interest and penalties totaled approximately $1.5 million. Purchase commitments were approximately $3.0 million, and the company continues a voluntary program for certain former Netsurfers shareholders whose ultimate cost cannot be reliably estimated.
- Ralph Bartel held approximately 35.7% of outstanding shares and Holger Bartel approximately 3.9%. Holger Bartel is the CEO and Ralph Bartel’s brother; the filing includes related-party transactions and executive stock-option grants.
Investor Verification Checklist
- Verify the sustainability of positive earnings in light of negative operating cash flow and the $47.9 million merchant-payable balance.
- Monitor voucher redemption rates, expiration extensions, refund reserves, and the timing of merchant payments.
- Assess whether increased marketing spending converts into member growth and revenue, particularly in Europe.
- Separate recurring operating performance from the $1.2 million government grant, $196,000 WeGo recovery, and prior-year PPP forgiveness.
- Review related-party asset acquisitions, executive compensation, option exercises, ownership concentration, and the new share-repurchase authorization.
- Track foreign-currency effects, travel-industry recovery, advertiser demand, and the company’s ability to obtain financing if required.