Travelzoo Reports Third Quarter 2013 Results

Travelzoo Inc. (NASDAQ: TZOO):

Third Quarter 2013 Financial Highlights:
  • Revenue of $37.3 million, up 5% year-over-year
  • Non-GAAP net income of $3.0 million
  • Non-GAAP earnings per share of $0.19, compared to $0.21 in the prior-year period
  • GAAP net loss of $19.0 million; GAAP loss per share of $1.24
  • Cash flow from operations of $2.2 million

Travelzoo Inc., a global Internet media company, today announced financial results for the third quarter ended September 30, 2013, with revenue of $37.3 million, an increase of 5% year-over-year. Non-GAAP operating income was $4.0 million. Non-GAAP net income was $3.0 million, with non-GAAP earnings per share (non-GAAP EPS) of $0.19, down from non-GAAP EPS of $0.21 in the prior-year period. Non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share exclude a $22.0 million charge related to a reserve for Travelzoo Inc.'s settlement agreements in connection with a dispute over unclaimed property audits.

"Our combined Travel business grew 16% year-over-year, this progress was offset by disappointing results in our Search and Local businesses," said Chris Loughlin, chief executive officer. "We continue to invest in product development in order to make it easier to find and book deals on Travelzoo and to spur future growth. We launched a new home page this quarter and intend to start beta-testing our new hotel booking platform at the beginning of next year. Purchases on mobile products increased 41% year-over-year. On the social media side, we are now one of the more active travel brands, with over 1.8 million combined fans and followers on Facebook and Twitter."

North America

North America business segment revenue increased 4% year-over-year to $26.2 million. Non-GAAP operating income for the third quarter ended September 30, 2013 was $2.5 million, or 10% of revenue, down from $3.1 million, or 12% of revenue, in the prior-year period.

Europe

Europe business segment revenue increased 7% year-over-year to $11.0 million. In local currency terms, revenue for the third quarter September 30, 2013 increased 9% year-over-year. Operating profit was $1.5 million, or 13% of revenue, up from an operating profit of $1.1 million, or 10% of revenue in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of subscribers in North America and Europe of 23.2 million as of September 30, 2013, up 4% from September 30, 2012. In North America, total unduplicated number of subscribers was 16.5 million as of September 30, 2013, up 3% from September 30, 2012. In Europe, total unduplicated number of subscribers was 6.7 million as of September 30, 2013, up 6% from September 30, 2012.

Income Taxes

Income tax expense was $1.2 million, compared to $896,000 in the prior-year period. The Non-GAAP effective income tax rate was 29%, up from 21% in the prior-year period.

Asset Management

During the third quarter of 2013, Travelzoo generated $2.2 million of cash from operating activities. Accounts receivable decreased by $622,000 over the prior-year period to $14.8 million. Accounts payable increased by $4.4 million over the prior-year period to $27.7 million. Capital expenditures were $1.5 million, up from $774,000 in the prior-year period. As of September 30, 2013, cash and cash equivalents were $77.9 million.

Unclaimed Property Audits

Travelzoo entered into agreements with 34 states to resolve those states’ claims related to unclaimed property audits. As previously disclosed in the Company’s reports on Form 10-K and Form 10-Q, multiple states have claimed that certain shares of Travelzoo, which were not claimed by former shareholders of Travelzoo.com Corporation following the 2002 merger, were unclaimed property. While the Company disputes the states’ claims, the Company determined that it was in its best interest to resolve the disputes and settle with 34 of the states.

The multi-state settlement relates to an approximate 700,000 shares of Travelzoo that those states claim may be subject to escheat. An additional 15 states remain that have or may raise claims on a remaining approximate 400,000 shares that were not exchanged following the merger by residents in those states.

The Company expects to make one-time cash payments to the 34 states after further due diligence, which it intends to make from cash on hand. To cover those payments, as well as potential future settlements with the remaining 15 states, the Company recorded an estimated $22.0 million charge in the three months ended September 30, 2013.

Non-GAAP Measures

To give an enhanced view of Travelzoo's operating performance, management has calculated non-GAAP operating expense, non-GAAP North America operating income, non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate, non-GAAP net income and non-GAAP earnings per share by excluding the charges related to our unexchanged merger 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 measures. As the only difference between GAAP and non-GAAP measures is the charges related to our unexchanged merger shares, today’s reporting should not be viewed as Travelzoo’s intention to report non-GAAP measures in future periods. Refer to the “Reconciliation of GAAP to Non-GAAP Measures” section of this press release for a summary of these non-GAAP measures and their reconciliation to the reported GAAP measures.

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 Inc. is a global Internet media company. With more than 26 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 Inc. All other company and product names mentioned are trademarks of their respective owners.

 

Travelzoo Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)
 
  Three months ended   Nine months ended
September 30, September 30,

 
2013   2012 2013   2012
Revenues $ 37,256 $ 35,447 $ 120,759 $ 114,140
Cost of revenues 4,322   3,989   12,733   11,672
Gross profit 32,934   31,458   108,026   102,468
Operating expenses:
Sales and marketing 18,449 17,427 57,563 49,753
General and administrative 10,510 9,836 30,659 28,583
Unexchanged promotional merger shares 22,000     22,000   3,000
Total operating expenses 50,959   27,263   110,222   81,336
Income (loss) from operations (18,025 ) 4,195 (2,196 ) 21,132
Other income 224   135   369   218
Income (loss) before income taxes (17,801 ) 4,330 (1,827 ) 21,350
Income taxes 1,235   896   6,414   6,908
Net income (loss) $ (19,036 ) $ 3,434   $ (8,241 ) $ 14,442
Net income (loss) per share:        
Basic $ (1.24 ) $ 0.22   $ (0.54 ) $ 0.91
Diluted $ (1.24 ) $ 0.21   $ (0.54 ) $ 0.90
Weighted Average Shares:
Basic 15,362 15,884 15,362 15,935
Diluted 15,362 15,992 15,362 16,041
 
 

Travelzoo Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)
 
  September 30, 2013   December 31,

2012
Assets
Current assets:
Cash and cash equivalents $ 77,900 $ 61,169
Accounts receivable, net 14,818 13,626
Income taxes receivable 4,504 6,682
Deposits 501 389
Prepaid expenses and other current assets 3,483 2,260
Deferred tax assets 2,007   2,194  
Total current assets 103,213 86,320
Deposits, less current portion 979 1,107
Deferred tax assets, less current portion 1,229 1,710
Restricted cash 1,618 3,396
Property and equipment, net 6,376 4,314
Intangible assets, net 540   986  
Total assets $ 113,955   $ 97,833  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 27,676 $ 28,695
Accrued unexchanged promotional merger shares 25,000 3,000
Accrued expenses 10,043 8,993
Deferred revenue 1,740 2,698
Deferred rent 306 280
Income tax payable 1,353    
Total current liabilities 66,118 43,666
Long-term tax liabilities 10,388 10,030
Deferred rent, less current portion 1,423   798  
Total liabilities 77,929   54,494  
Common stock 163 163
Treasury stock (7,898 ) (7,898 )
Additional paid-in capital 9,851 8,863
Accumulated other comprehensive loss (797 ) (737 )
Retained earnings 34,707   42,948  
Total stockholders’ equity 36,026   43,339  
Total liabilities and stockholders’ equity $ 113,955   $ 97,833  
 
 

Travelzoo Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)
 
  Three months ended   Nine months ended
September 30, September 30,
2013   2012 2013   2012
Cash flows from operating activities:
Net income (loss) $ (19,036 ) $ 3,434 $ (8,241 ) $ 14,442

Adjustments to reconcile net income to net cash providedby operating activities:
Depreciation and amortization 709 630 2,185 1,856
Deferred income taxes 241 (3 ) 641 (3 )
Stock-based compensation 375 307 989 900
Provision for losses on accounts receivable (94 ) (84 ) (44 ) 116
Net foreign currency effects (74 ) (46 ) 38 (6 )
Changes in operating assets and liabilities:
Accounts receivable 1,021 53 (1,106 ) (2,069 )
Deposits (3 ) (17 ) 17 (382 )
Income tax receivable (1,424 ) 689 2,169 1,819
Prepaid expenses and other current assets 59 (161 ) (975 ) (241 )
Accounts payable (1,886 ) 680 (1,041 ) 1,189
Accrued unexchanged promotional shares 22,000 22,000 3,000
Accrued expenses (182 ) 897 1,039 3,198
Deferred revenue (109 ) 383 (956 ) 323
Deferred rent 188 55 299 21
Income tax payable 254 (1 ) 1,292 (284 )
Other non-current liabilities 149   34   359   (190 )
Net cash provided by operating activities 2,188   6,850   18,665   23,689  
Cash flows from investing activities:
Purchases of restricted cash 2,048 1,786
Purchases of property and equipment (1,487 ) (774 ) (3,596 ) (2,046 )
Net cash provided by (used in) investing activities 561   (774 ) (1,810 ) (2,046 )
Cash flows from financing activities:
Cash used in purchase of common stock   (3,611 )   (3,611 )
Net cash used in financing activities   (3,611 )   (3,611 )
Effect of exchange rate on cash and cash equivalents 1,770   1,008   (124 ) 858  
Net increase in cash and cash equivalents 4,519 3,473 16,731 18,890
Cash and cash equivalents at beginning of period 73,381   54,161   61,169   38,744  
Cash and cash equivalents at end of period $ 77,900   $ 57,634   $ 77,900   $ 57,634  
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net $ 1,897 $ 177 $ 1,917 $ 5,568
 
 

Travelzoo Inc.

Segment Information

(Unaudited)

(In thousands)
 
Three months ended September 30, 2013   North

America
  Europe  

Eliminationand Other (a)
  Consolidated
Revenue from unaffiliated customers $ 26,209 $ 11,047 $ $ 37,256
Intersegment revenue 361   110   (471 )  
Total net revenues 26,570   11,157   (471 ) 37,256  
Operating income $ 2,506   $ 1,469   $ (22,000 ) $ (18,025 )
 
Three months ended September 30, 2012 North

America
Europe Elimination Consolidated
Revenue from unaffiliated customers $ 25,147 $ 10,300 $ $ 35,447
Intersegment revenue 211   10   (221 )  
Total net revenues 25,358   10,310   (221 ) 35,447  
Operating income $ 3,121   $ 1,074   $   $ 4,195  
 
Nine months ended September 30, 2013 NorthAmerica Europe

Eliminationand Other (b)
Consolidated
Revenue from unaffiliated customers $ 86,368 $ 34,391 $ $ 120,759
Intersegment revenue 757   440   (1,197 )  
Total net revenues 87,125   34,831  

(1,197
) 120,759  
Operating income $ 13,888   $ 5,916   $ (22,000 ) $ (2,196 )
 
Nine months ended September 30, 2012 NorthAmerica Europe

Eliminationand Other (b)
Consolidated
Revenue from unaffiliated customers $ 82,415 $ 31,725 $ $ 114,140
Intersegment revenue 496   41   (537 )  
Total net revenues 82,911   31,766   (537 ) 114,140  
Operating income $ 18,094   $ 6,038   $ (3,000 ) $ 21,132  
 

(a) Includes a charge of $22.0 million for the three months ended September 30, 2013 related    to settlement agreements in connection with a dispute over unclaimed property audits.

(b) Includes a charge of $22.0 million and $3.0 million for the nine months ended September 30, 2013    and 2012, respectively, related to settlement agreements in connection with a dispute over    unclaimed property audits.
 
 
Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts)
 
  Three months ended   Nine months ended
September 30, September 30,
2013   2012 2013   2012
GAAP operating expense $ 50,959 $ 27,263 $ 110,222 $ 81,336
Unexchanged merger shares (a) (b) 22,000     22,000   3,000  
Non-GAAP operating expense $ 28,959 $ 27,263 $ 88,222 $ 78,336
 
GAAP operating income (loss) $ (18,025 ) $ 4,195 $ (2,196 ) $ 21,132
Unexchanged merger shares (a) (b) 22,000     22,000   3,000  
Non-GAAP operating income $ 3,975 $ 4,195 $ 19,804 $ 24,132
 
GAAP operating margin (48.4) % 11.8 % (1.8) % 18.5 %
Unexchanged merger shares (a) (b) 59.1 % — % 18.2 % 2.6 %
Non-GAAP operating margin 10.7 % 11.8 % 16.4 % 21.1 %
 
GAAP effective tax rate (6.9) % 20.7 % (351.1) % 32.4 %
Unexchanged merger shares (a) (b) 36.4 % — % 382.9 % (4.0) %
Non-GAAP effective tax rate 29.4 % 20.7 % 31.8 % 28.4 %
 
GAAP net income (loss) $ (19,036 ) $ 3,434 $ (8,241 ) $ 14,442
Unexchanged merger shares (a) (b) 22,000     22,000   3,000  
Non-GAAP net income $ 2,964 $ 3,434 $ 13,759 $ 17,442
 
Earnings (loss) per share $ (1.24 ) $ 0.21 $ (0.54 ) $ 0.90
Unexchanged merger shares (a) (b) 1.43     1.42   0.19  
Non-GAAP earnings per share (c) $ 0.19 $ 0.21 $ 0.88 $ 1.09
 

(a) Includes a charge of $22.0 million for the three months ended September 30, 2013 related to    settlement agreements in connection with a dispute over unclaimed property audits.

(b) Includes a charge $22.0 million and $3.0 million for the nine months ended September 30, 2013    and 2012, respectively, related to settlement agreements in connection with a dispute over    unclaimed property audits.

(c) Shares used to calculate non-GAAP earnings per share for the three months ended September 30,    2013 were 15,482,802, which were different than the shares used in GAAP loss per share    calculation due to the anti-dilutive effect on the GAAP loss per share. Shares used to calculate    non-GAAP earnings per share for the nine months ended September 30, 2013 were 15,550,982,    which were different than the shares used in GAAP loss per share calculation due to the anti-    dilutive effect on the GAAP loss per share.
 

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