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Travelzoo Reports Second Quarter 2014 Results

NEW YORK--(BUSINESS WIRE)--Travelzoo Inc. (NASDAQ:TZOO):

“We continue to invest in mobile products and in our new hotel booking platform.”

  • Revenue of $36.9 million, down 11% year-over-year
  • Operating profit of $10.1 million, up 30% year-over-year
  • Non-GAAP earnings per share of $0.30, compared to $0.34 in the prior-year period
  • Cash used in operations of $509,000

Travelzoo Inc., a global Internet media company, today announced financial results for the second quarter ended June 30, 2014, with revenue of $36.9 million, a decrease of 11% year-over-year. Net income was $7.9 million, with earnings per share of $0.54. Non-GAAP net income was $4.4 million, with non-GAAP earnings per share of $0.30. Non-GAAP net income and non-GAAP earnings per share exclude a $3.5 million release of reserve for Travelzoo Inc.'s anticipated settlement agreements in connection with a dispute over unclaimed property audits.

"In North America, our revenues declined due to lower Local and Search revenues, as previously announced. In Europe, our revenues and operating income increased. Europe contributed 43% of our operating income this quarter," said Chris Loughlin, chief executive officer. "We continue to invest in mobile products and in our new hotel booking platform."

North America

North America business segment revenue decreased 17% year-over-year to $25.2 million. Non-GAAP operating profit for the second quarter was $3.8 million, or 15% of revenue, down from $5.9 million, or 20% of revenue, in the prior-year period.

Europe

Europe business segment revenue increased 6% year-over-year to $11.7 million. In local currency terms, revenue decreased 4% year-over-year. Non-GAAP operating profit for the second quarter was $2.9 million, or 24% of revenue, up from $1.9 million, or 17% of revenue in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of subscribers in North America and Europe of 23.7 million as of June 30, 2014, up 3% from June 30, 2013. In North America, total unduplicated number of subscribers was 16.7 million as of June 30, 2014, up 2% from June 30, 2013. In Europe, total unduplicated number of subscribers was 7.0 million as of June 30, 2014, up 6% from June 30, 2013.

Update on Hotel Booking Platform

Travelzoo began testing its new hotel booking platform in North America in April on desktop and in June on mobile. In the second quarter, the booking engine was presented to a limited number of Travelzoo subscribers. Booking revenue is recognized upon stay, which is typically 40 to 50 days after the booking occurs.

Income Taxes

Income tax expense was $2.3 million, compared to $2.7 million in the prior-year period. The effective income tax rate, as calculated on the basis of non-GAAP income before taxes, was 34%, consistent with prior-year period.

Asset Management

During the second quarter of 2014, Travelzoo used $509,000 of cash from operating activities primarily due to new terms with Local Deals merchants which resulted in faster payments. Accounts receivable increased by $1.1 million over the prior-year period to $16.5 million. Accounts payable decreased by $4.8 million over the prior-year period to $24.1 million. Capital expenditures were $405,000, down from $1.2 million in the prior-year period. As of June 30, 2014, cash and cash equivalents were $60.5 million.

Non-GAAP Information

To give an enhanced view of Travelzoo's operating performance, management has calculated non-GAAP operating expense, non-GAAP North America operating profit, non-GAAP operating profit, non-GAAP operating margin, non-GAAP effective tax rate, non-GAAP net income and non-GAAP earnings per share by excluding the release of reserve related to our unexchanged promotional shares. The company believes these metrics assist investors to assess certain business trends in the same way that these trends are analyzed by management. The discussion of these non-GAAP metrics are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial information. As the only difference between GAAP and non-GAAP information is the release of reserve related to our unexchanged promotional shares, today’s reporting should not be viewed as Travelzoo’s intention to report non-GAAP information in future periods. Refer to the “Reconciliation of GAAP to Non-GAAP Information” section of this press release for important information.

Conference Call

Travelzoo will host a conference call to discuss second quarter results at 11:00 a.m. ET today. Please visit http://www.travelzoo.com/earnings to

  • download the management presentation (PDF format) to be discussed in the conference call;
  • access the webcast.

About Travelzoo

Travelzoo Inc. is a global Internet media company. With more than 27 million subscribers in North America, Europe, and Asia Pacific and 25 offices worldwide, Travelzoo® publishes deals from more than 2,000 travel and entertainment companies. Travelzoo’s deal experts review offers to find the best deals and confirm their true value. In Asia Pacific, Travelzoo is independently owned and operated by Travelzoo (Asia) Ltd. and Travelzoo Japan K.K. under a license agreement with Travelzoo Inc.

Certain statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include, but are not limited to, statements about our plans, objectives, expectations, prospects and intentions, markets in which we participate and other statements contained in this press release that are not historical facts. When used in this press release, the words “expect”, “predict”, “project”, “anticipate”, “believe”, “estimate”, “intend”, “plan”, “seek” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including changes in our plans, objectives, expectations, prospects and intentions and other factors discussed in our filings with the SEC. We cannot guarantee any future levels of activity, performance or achievements. Travelzoo undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release. Travelzoo and Top 20 are registered trademarks of Travelzoo. All other names are trademarks and/or registered trademarks of their respective owners.

 

Travelzoo Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

   
Three months ended Six months ended
June 30, June 30,
2014   2013 2014   2013
Revenues $ 36,883 $ 41,327 $ 77,078 $ 83,504
Cost of revenues 4,374   4,425   9,151   8,411
Gross profit 32,509   36,902   67,927   75,093
Operating expenses:
Sales and marketing 15,305 19,457 33,148 39,115
General and administrative 10,570 9,651 21,148 20,149
Unexchanged promotional shares (3,500 )   (3,500 )
Total operating expenses 22,375   29,108   50,796   59,264
Income from operations 10,134 7,794 17,131 15,829
Other income 56   112   177   144
Income before income taxes 10,190 7,906 17,308 15,973
Income taxes 2,266   2,706   4,747   5,178
Net income $ 7,924   $ 5,200   $ 12,561   $ 10,795
Net income per share:              
Basic $ 0.54   $ 0.34   $ 0.85   $ 0.70
Diluted $ 0.54   $ 0.34   $ 0.84   $ 0.70
Weighted average shares:
Basic 14,734 15,362 14,806 15,362
Diluted 14,794 15,457 14,881 15,427
 
 

Travelzoo Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

   

June 30,
2014

December 31,
2013

Assets
Current assets:
Cash and cash equivalents $       60,502 $ 66,223
Accounts receivable, net 16,529 13,986
Income taxes receivable 2,015 2,656
Deposits 287 396
Prepaid expenses and other current assets 2,066 3,202
Deferred tax assets 1,216 1,143
Restricted cash 200
Funds held for reverse/forward stock split 199   13,668  
Total current assets 82,814 101,474
Deposits 1,183 1,168
Deferred tax assets 2,476 2,032
Restricted cash 1,478 1,479
Property and equipment, net 9,668 8,245
Intangible assets, net 298   404  
Total assets $       97,917   $ 114,802  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 24,108 $ 31,766
Accrued expenses and other 9,100 10,824
Deferred revenue 1,801 1,578
Income tax payable 1,699
Reserve for unexchanged promotional shares 8,000 12,726
Payable to shareholders for reverse/forward stock split 199   13,668  
Total current liabilities 44,907 70,562
Long-term tax liabilities 10,660 10,436
Long term deferred rent and other 3,419   2,469  
Total liabilities 58,986   83,467  
Common stock 163 163
Treasury stock (21,517 ) (15,662 )
Additional paid-in capital 11,037 10,247
Accumulated other comprehensive loss (83 ) (530 )
Retained earnings 49,331   37,117  
Total stockholders’ equity 38,931   31,335  
Total liabilities and stockholders’ equity $       97,917   $ 114,802  
 
 

Travelzoo Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

   
Three months ended Six months ended
June 30,   June 30,
2014   2013 2014   2013
Cash flows from operating activities:
Net income $ 7,924 $ 5,200 $ 12,561 $ 10,795

Adjustments to reconcile net income to net cash provided
by (used in) operating activities:

Depreciation and amortization 640 760 1,342 1,476
Impairment of software 249 249
Deferred income taxes (584 ) 207 (508 ) 400
Stock-based compensation 395 307 790 613
Provision for losses on accounts receivable 41 (45 ) (11 ) 50
Net foreign currency effects (6 ) 19 (36 ) 112
Changes in operating assets and liabilities:
Accounts receivable (1,123 ) (91 ) (2,411 ) (2,127 )
Deposits 27 175 160 20
Income tax receivable (717 ) 2,029 549 3,593
Prepaid expenses and other current assets 60 (1,382 ) 564 (1,032 )
Accounts payable (4,350 ) 1,965 (7,389 ) 845
Accrued expenses and other (740 ) 263 (1,920 ) 485
Income tax payable 1,061 467 1,783 1,038
Reserve for unexchanged promotional shares (3,500 ) (4,726 )
Other non-current liabilities 114   107   225   210  
Net cash provided by (used in) operating activities (509 ) 9,981   1,222   16,478  
Cash flows from investing activities:
Release (purchase) of restricted cash (263 ) 200 (263 )
Purchases of property and equipment (405 ) (1,209 ) (1,424 ) (2,109 )
Net cash used in investing activities (405 ) (1,472 ) (1,224 ) (2,372 )
Cash flows from financing activities:
Repurchase of common stock (287 ) (5,855 )

Reverse/forward stock split, including transaction
costs

    (479 )  
Net cash used in financing activities (287 )   (6,334 )  
Effect of exchange rate on cash and cash equivalents 668   (235 ) 615   (1,894 )
Net increase (decrease) in cash and cash equivalents (533 ) 8,274 (5,721 ) 12,212
Cash and cash equivalents at beginning of period 61,035   65,107   66,223   61,169  
Cash and cash equivalents at end of period $ 60,502   $ 73,381   $ 60,502   $ 73,381  
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 2,508 $ 10 $ 2,843 $ 20
 
 

Travelzoo Inc.

Segment Information

(Unaudited)

(In thousands)

       
Three months ended June 30, 2014

North
America

Europe

Elimination
and Other (a)

Consolidated
Revenue from unaffiliated customers $       25,175 $     11,708 $ $ 36,883
 
Intersegment revenue 302   129   (431 )
Total net revenues 25,477   11,837   (431 ) 36,883
Operating income $       3,771   $     2,863   $ 3,500   $ 10,134
Three months ended June 30, 2013

North
America

Europe

Elimination
and Other

Consolidated
Revenue from unaffiliated customers $ 30,249 $ 11,078 $ $ 41,327
Intersegment revenue 331   222   (553 )
Total net revenues 30,580   11,300   (553 ) 41,327
Operating income $      

5,899

  $     1,895   $   $ 7,794
 
Six months ended June 30, 2014

North
America

Europe

Elimination
and Other (a)

Consolidated
Revenue from unaffiliated customers $ 51,528 $ 25,550 $ $ 77,078
Intersegment revenue 716   141   (857 )
Total net revenues 52,244   25,691   (857 ) 77,078
Operating income $       8,375   $     5,256   $ 3,500   $ 17,131
Six months ended June 30, 2013

North
America

Europe

Elimination
and Other

Consolidated
Revenue from unaffiliated customers $ 60,160 $ 23,344 $ $ 83,504
Intersegment revenue 575   330   (905 )
Total net revenues 60,735   23,674   (905 ) 83,504
Operating income $       11,382   $     4,447   $   $ 15,829
 
(a)   Includes a $3.5 million release of reserve for the three and six months ended June 30, 2014 related to anticipated settlement agreements in connection with a dispute over unclaimed property audits.
 
 
Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Information
(Unaudited)
(In thousands, except per share amounts)
     
 
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
GAAP operating expense $ 22,375 $ 29,108 $ 50,796 $ 59,264
Unexchanged promotional shares (a) (3,500 )   (3,500 )  
Non-GAAP operating expense $ 25,875 $ 29,108 $ 54,296 $ 59,264
 
GAAP operating income $ 10,134 $ 7,794 $ 17,131 $ 15,829
Unexchanged promotional shares (a) (3,500 )   (3,500 )  
Non-GAAP operating income $ 6,634 $ 7,794 $ 13,631 $ 15,829
 
GAAP operating margin 27.5 % 18.9 % 22.2 % 19.0 %
Unexchanged promotional shares (a) (9.5 )% % (4.5 )% %
Non-GAAP operating margin 18.0 % 18.9 % 17.7 % 19.0 %
 
GAAP effective tax rate 22.2 % 34.2 % 27.4 % 32.4 %
Unexchanged promotional shares (a) 11.6 % % 7.0 % %
Non-GAAP effective tax rate 33.8 % 34.2 % 34.4 % 32.4 %
 
GAAP net income $ 7,924 $ 5,200 $ 12,561 $ 10,795
Unexchanged promotional shares (a) (3,500 )   (3,500 )  
Non-GAAP net income $ 4,424 $ 5,200 $ 9,061 $ 10,795
 
Earnings per share $ 0.54 $ 0.34 $ 0.84 $ 0.70
Unexchanged promotional shares (a) (0.24 )   (0.24 )  
Non-GAAP earnings per share $ 0.30 $ 0.34 $ 0.60 $ 0.70
 
(a)   Includes a $3.5 million release of reserve for the three and six months ended June 30, 2014 related to anticipated settlement agreements in connection with a dispute over unclaimed property audits.
 

Contacts

Media:
Travelzoo Inc.
Glen Ceremony, +1 212-484-4998
Chief Financial Officer
pr@travelzoo.com