Travelzoo's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Travelzoo Inc. ( TZOO)

Q2 2011 Earnings Call

July 21, 2011 11:00 AM ET

Executives

Christopher Loughlin – CEO

Glen Ceremony – CFO

Analysts

Frederick Moran – Moran Capital Management

Eric Martinuzzi – Craig-Hallum Capital Group

Edward Woo – Wedbush Securities

Justin Patterson – Morgan Keegan & Co.

Atul Bagga – ThinkEquity

Presentation

Operator

Good morning, everyone, and welcome to the Travelzoo’s Second Quarter 2011 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for questions, following the presentation. Today’s call is being recorded.

It is now my pleasure to turn the floor over to your host, Chris Loughlin, Travelzoo’s Chief Executive Officer. Sir, you may begin.

Christopher Loughlin

Thank you, operator. Good morning, and thank you for joining us today for Travelzoo’s second quarter 2011 financial results conference call. I’m Chris Loughlin, Chief Executive Officer. With me today is Glen Ceremony, the company’s Chief Financial Officer.

Glen will walk you through today’s format.

Glen Ceremony

Thank you, Chris, and good morning, everyone. Before we begin our presentation, we would like to remind you that all statements made during this conference call and presented in our slides that are not statements of historical facts constitute forward-looking statements, and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary from those contained in the forward-looking statements materially.

Factors that could cause actual results to differ materially from those in the forward-looking statements are described in our Forms 10-K and 10-Q, and other periodic filings with the SEC. Please note that this call is being webcast from our Investor Relations’ website at www.travelzoo.com/earnings.

Please refer to our website for important information, including our earnings release issued earlier this morning, along with the slides that accompany today’s prepared remarks.

An archive recording of this conference call will be available on the Travelzoo Investor Relations’ website at www.travelzoo.com/ir, beginning approximately 90 minutes after the conclusion of this call.

For the format of today’s call, I will review our Q2 2011 financial results, and then Chris will provide an update on our strategy. We will then conclude with a question-and-answer session. Now if you will please open our management presentation, which is available at www.travelzoo.com/earnings.

Turning to slide five, we achieved record revenues of $37.6 million in Q2 2011, up 34% on the same period last year. We also achieved EPS of $0.30, up from $0.20 in the same period last year, and we continued our growth in new subscribers, adding approximately 800,000 new subscribers, that’s almost 300,000 more than in Q2 2010.

On slide six, this provides more detail on our operating income. Operating income for the company in Q2 2011 was $7.6 million; $6.5 million came from our North America business, while Europe contributed record profit of $1.1 million and its fourth consecutive quarter of profitability. Our income tax expense was $2.8 million, resulting in net income of $4.9 million.

Turning to slide seven, we look at revenue by segment. Revenue growth in North America was 25%, our highest quarterly growth rate in four years. In Europe, revenue growth accelerated to 67% year-over-year, and in local currency terms, we increased by 53%, ahead of our Q1 pace.

Turning to slide eight, we present our operating income. North America, operating income was stable year-over-year and Europe increased twofold as it continued its profitability. This resulted in operating income of $7.6 million, representing a year-over-year growth rate of 29%, despite a $2 million television advertising test, an investments in Local Deals to future – to fuel future growth.

Slide nine, gives us more insight into operating expenses. Operating expenses in North America increased due to our investments in Local Deals and our $2 million television advertising test.

In Europe, operating expenses increased due to our investment in Local Deals as well. Yet as we scale in Europe, as a percentage of Europe revenues, expenses decreased from a 109% to 84%. So despite our investments in both North America and Europe, because our total revenues increased 34% as a percentage of total revenue, the total operating expenses year-over-year remains stable at 73%.

Slide 10, shows that our head count increased from 296 in Q1 of 2011 to 343 this quarter, our highest ever sequential growth rate in new employees. The majority of our new hires during Q2 were in Local Deals. As you can see our productivity declined as our new staff come up to speed. We are investing for future growth to bring the best deals to our subscribers, and we intend to increase productivity as revenue grows.

Turning to slide 11, we take a look at our cash management, DSOs or day sales outstanding, decreased to 40 days, compared to 41 days in Q1 2011 and improved by five days, when compared to 2010. We ended the quarter with $40.1 million in cash and cash equivalents. This was down from prior quarter as a result of the Q1 2011 one-time $20 million State of Delaware settlement.

As we continue to grow the Local Deals portion of our business, the cash flow increase. As consumers pay us immediately and then we pay the merchants their share at a later day.

We summarize the financial results for the quarter on slide 12. We had a strong quarter with record revenues. The fastest year-over-year growth rate in four years. We had strong year-over-year growth in operating income despite investments in Local Deals and the $2 million television advertising test in the U.S. We also had our second best Q2 ever in terms of subscriber growth.

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