Travelzoo Reports Third Quarter 2016 Results

Travelzoo Inc. (NASDAQ:TZOO):

  • Revenue of $30.4 million, down 7% year-over-year in constant currencies
  • Operating profit of $2.2 million, compared to $860,000 in prior-year period
  • Earnings per share (EPS) of $0.12

Travelzoo, a global media commerce company, today announced financial results for the third quarter ended September 30, 2016, with revenue of $30.4 million and operating income of $2.2 million. In nominal terms, revenue decreased by 10% year-over-year. In constant currencies, revenue decreased by 7% year-over-year. GAAP net income was $1.6 million, with earnings per share of $0.12. Non-GAAP earnings per share were $0.12, up from $0.03 in the prior-year period.

"The launch of a new Travelzoo® site in October was well received by our members," said Holger Bartel, Chairman and Global CEO. "The new responsive site makes it easy to search by date for outstanding travel and entertainment offers researched by our global staff, many of which Travelzoo has negotiated exclusively for its members. We intend to leverage Travelzoo's global reach and trusted brand to grow revenue and increase profitability in future periods.”

Asia Pacific

Asia Pacific business segment revenue decreased 6% year-over-year to $2.6 million. In constant currencies, revenue decreased 10% year-over-year. Operating loss for the third quarter was $790,000, compared to an operating loss of $414,000 in the prior-year period.

Europe

Europe business segment revenue decreased 15% year-over-year to $8.8 million. In constant currencies, revenue decreased 5% year-over-year. Operating profit for the third quarter was $1.6 million, or 18% of revenue, up from $587,000, or 6% of revenue in the prior-year period.

North America

North America business segment revenue decreased 8% year-over-year to $19.1 million. Operating profit for the third quarter was $1.4 million, or 7% of revenue, up from $687,000 or 3% of revenue in the prior-year period.

Members

As of September 30, 2016, Travelzoo had a worldwide unduplicated number of members of 29.1 million. In Asia Pacific, unduplicated number of members was 3.6 million as of September 30, 2016, up 3% from September 30, 2015. In Europe, unduplicated number of members was 8.2 million as of September 30, 2016, up 5% from September 30, 2015. In North America, unduplicated number of members was 17.4 million as of September 30, 2016, up 1% from September 30, 2015.

Income Taxes

Income tax expense was $837,000, compared to a $8.2 million income tax benefit in the prior-year period. Prior year non-GAAP income tax expense of $214,000 excludes an $8.4 million release of a tax reserve related to the unexchanged promotional shares.

Asset Management

During the third quarter of 2016, Travelzoo used $1.5 million cash in operating activities. Accounts receivable decreased by $1.1 million over the prior-year period to $16.7 million. Accounts payable decreased by $4.4 million over the prior-year period to $18.6 million. Capital expenditures were $155,000, up from $132,000 in the prior-year period. As of September 30, 2016, cash and cash equivalents were $24.8 million.

Non-GAAP Information

To give an enhanced view of Travelzoo's operating performance, management has calculated non-GAAP income tax expense, non-GAAP effective tax rate, non-GAAP net income and non-GAAP earnings per share by excluding the release of a tax reserve related to the unexchanged promotional shares in the prior period. 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 a tax reserve related to the unexchanged promotional shares in the prior-year period, 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. Management presents year-over-year revenue percentage rates of change in constant currencies, calculated using prior-year period foreign currency rates on current-year period non-US revenue, as it believes this is a useful metric that facilitates comparison to historical performance.

Conference Call

Travelzoo will host a conference call to discuss third 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 is a global media commerce company. With more than 29 million members in Asia Pacific, Europe, and North America and 25 offices worldwide, Travelzoo® publishes offers from more than 2,000 travel, entertainment and local companies. Travelzoo’s deal experts review offers to find the best deals and confirm their true value.

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 endedNine months ended
September 30,September 30,
2016201520162015
Revenues $ 30,440 $ 33,728 $ 99,290 $ 109,665
Cost of revenues 3,361 4,742 10,982 14,496
Gross profit 27,079 28,986 88,308 95,169
Operating expenses:
Sales and marketing 17,184 19,089 55,278 61,881
Product development 2,317 2,917 7,281 9,212
General and administrative 5,373 6,120 16,620 17,906
Total operating expenses 24,874 28,126 79,179 88,999
Income from operations 2,205 860 9,129 6,170
Other income (loss) 251 (202 ) 293 (866 )
Income before income taxes 2,456 658 9,422 5,304
Income taxes 837 (8,199 ) 3,734 (5,125 )
Net income $ 1,619 $ 8,857 $ 5,688 $ 10,429
Net income per share:
Basic $ 0.12 $ 0.60 $ 0.40 $ 0.71
Diluted $ 0.12 $ 0.60 $ 0.40 $ 0.71
Weighted average shares:
Basic 13,839 14,730 14,109 14,730
Diluted 13,867 14,730 14,119 14,730

Travelzoo Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

September 30,
2016
December 31,
2015
Assets
Current assets:
Cash and cash equivalents $ 24,839 $ 35,128
Accounts receivable, net 16,692 16,398
Income taxes receivable 1,657 1,356
Deposits 490 782
Prepaid expenses and other 2,472 1,928
Deferred tax assets 1,055 1,230
Total current assets 47,205 56,822
Deposits 693 501
Deferred tax assets 655 1,769
Restricted cash 1,177 1,328
Property and equipment, net 6,730 7,905
Other assets 15
Total assets $ 56,460 $ 68,340
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 18,616 $ 23,655
Accrued expenses and other 8,316 9,901
Deferred revenue 789 1,085
Income tax payable 2,029 477
Note payable to related party 5,658
Total current liabilities 29,750 40,776
Long-term tax liabilities 3,122 3,000
Long-term deferred rent and other 2,793 3,177
Total liabilities 35,665 46,953
Common stock 143 150
Additional paid-in capital 1,387 7,759
Accumulated other comprehensive loss (3,809 ) (3,908 )
Retained earnings 23,074 17,386
Total stockholders’ equity 20,795 21,387
Total liabilities and stockholders’ equity $ 56,460 $ 68,340

Travelzoo Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three months endedNine months ended
September 30,September 30,
2016201520162015
Cash flows from operating activities:
Net income $ 1,619 $ 8,857 $ 5,688 $ 10,429

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

Depreciation and amortization 606 688 1,856 2,198
Deferred income taxes (13 ) (164 ) (224 ) (407 )
Stock-based compensation 251 (150 ) 692 146
Provision for losses on accounts receivable (28 ) (151 ) 17 (99 )
Net foreign currency effects (71 ) 182 (308 ) 347
Changes in operating assets and liabilities:
Accounts receivable 1,715 824 (547 ) (2,052 )
Deposits 13 46 51 118
Income tax receivable (823 ) 299 (299 ) 1,980
Prepaid expenses and other (551 ) (446 ) (438 ) 78
Accounts payable (2,177 ) (1,739 ) (4,391 ) (2,706 )
Accrued expenses and other (2,628 ) (707 ) (2,074 ) (463 )
Income tax payable 504 283 1,772 306
Reserve for unexchanged promotional shares (1,393 )
Other non-current liabilities 69 (8,644 ) 121 (7,849 )
Net cash provided by (used in) operating activities (1,514 ) (822 ) 1,916 633
Cash flows from investing activities:
Release of restricted cash 8 66
Purchases of property and equipment (155 ) (132 ) (802 ) (885 )
Net cash used in investing activities (155 ) (124 ) (802 ) (819 )
Cash flows from financing activities:
Payment for Asia Pacific business (16,974 ) 58 (16,974 )
Payment of loan to related party (3,250 ) (5,658 ) (3,250 )
Proceeds from related party loan 2,224
Decrease in bank overdraft (206 ) (341 )
Repurchase of common stock, net (771 ) (5,727 )
Reverse/forward stock split, including transaction costs (102 )
Net cash used in financing activities (771 ) (20,430 ) (11,327 ) (18,443 )
Effect of exchange rate on cash and cash equivalents (281 ) (531 ) (76 ) (2,218 )
Net decrease in cash and cash equivalents (2,721 ) (21,907 ) (10,289 ) (20,847 )
Cash and cash equivalents at beginning of period 27,560 56,477 35,128 55,417
Cash and cash equivalents at end of period $ 24,839 $ 34,570 $ 24,839 $ 34,570
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 1,126 $ 9 $ 2,198 $ 742
Cash paid for interest on related party loan $ $ $ 110 $
Note payable for Asia Pacific business $ $ 5,658 $ $ 5,658

Travelzoo Inc.

Segment Information

(Unaudited)

(In thousands)

Three months ended September 30, 2016Asia PacificEuropeNorth
America
Consolidated
Revenue from unaffiliated customers $ 2,531 $ 9,003 $ 18,906 $ 30,440
Intersegment revenue 35 (188 ) 153
Total net revenues 2,566 8,815 19,059 30,440
Operating income (loss) $ (790 ) $ 1,626 $ 1,369 $ 2,205
Three months ended September 30, 2015Asia PacificEuropeNorth
America
Consolidated
Revenue from unaffiliated customers 2,746 10,444 20,538 33,728
Intersegment revenue (28 ) (127 ) 155
Total net revenues 2,718 10,317 20,693 33,728
Operating income (loss) $ (414 ) $ 587 $ 687 $ 860
Nine months ended September 30, 2016Asia PacificEuropeNorth
America
Consolidated
Revenue from unaffiliated customers $ 7,202 $ 29,915 $ 62,173 $ 99,290
Intersegment revenue 71 (509 ) 438
Total net revenues 7,273 29,406 62,611 99,290
Operating income (loss) $ (3,058 ) $ 5,511 $ 6,676 $ 9,129
Nine months ended September 30, 2015Asia PacificEuropeNorth
America
Consolidated
Revenue from unaffiliated customers $ 8,127 $ 32,560 $ 68,978 $ 109,665
Intersegment revenue (48 ) (422 ) 470
Total net revenues 8,079 32,138 69,448 109,665
Operating income (loss) $ (1,515 ) $ 2,363 $ 5,322 $ 6,170
Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Information
(Unaudited)
(In thousands, except per share amounts)
Three months endedNine months ended
September 30,September 30,
2016201520162015
GAAP income tax expense (benefit) $ 837 $ (8,199 ) $ 3,734 $ (5,125 )
Non-GAAP adjustments (a) 8,413 8,413
Non-GAAP income tax expense $ 837 $ 214 $ 3,734 $ 3,288
GAAP effective tax rate 34.1 % (1,246.0 ) % 39.6 % (96.6 ) %
Non-GAAP adjustments (a) % 1,278.5 % % 158.6 %
Non-GAAP effective tax rate 34.1 % 32.5 % 39.6 % 62.0 %
GAAP net income $ 1,619 $ 8,857 $ 5,688 $ 10,429
Non-GAAP adjustments (a) (8,413 ) (8,413 )
Non-GAAP net income $ 1,619 $ 444 $ 5,688 $ 2,016
GAAP diluted earnings per share $ 0.12 $ 0.60 $ 0.40 $ 0.71
Non-GAAP adjustments (a) (0.57 ) (0.57 )
Non-GAAP earnings per share $ 0.12 $ 0.03 $ 0.40 $ 0.14

(a) Includes an $8.4 million release of a tax reserve for the three and nine months ended September 30, 2015, related to the unexchanged promotional shares.

Contacts:

Travelzoo
Investor Relations:
Molly Yu
ir@travelzoo.com

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