travelzoo webcast presentation 01-23-14
TRANSCRIPT
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
The Deal Experts. Over 27 Million Subscribers Worldwide.
First Quarter 2014 Performance and Growth Strategy Overview April 17, 2014
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Important Notice Please read this management presentation together with the Company’s press release issued earlier today announcing the Company’s first quarter 2014 financial results and in conjunction with the Company’s recent Annual Report and Quarterly Results as filed with the Securities and Exchange Commission (SEC). Certain statements contained in this presentation that are not historical facts may be forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These forward looking statements may include, but are not limited to, statements about our plans, objectives, expectations, prospects, expected future financial guidance and intentions, markets in which we participate and other statements contained in this presentation that are not historical facts. When used in this presentation, 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 Inc. undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this presentation.
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Part 1: First Quarter 2014 Performance
Part 2: Growth Strategy Overview
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Subscriber growth continues yet total revenue and earnings per share are impacted by lower Search and Local revenue.
22.9 23.6
Q1 2013 Q1 2014
42.2 40.2
Q1 2013 Q1 2014
$0.36
$0.31
Q1 2013 Q1 2014
Q1 2014 Financial Performance
Revenue $ millions
EPS $ per share
Subscribers Millions
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Europe revenue growth is offset by decline in North America revenue.
Quarterly Revenue by Segment
13.8
12.3
11.9
10.7
11.0
10.7
11.1
10.6
12.3
10.8
26.4
29.9
25.6
26.4
26.2
25.1
30.2
28.7
29.9
28.6 Q1
Q2
Q3
8.4
7.9
7.3
6.6
7.1
6.7
7.2
6.7
7.9
6.9
North America $ millions
Europe $ millions
2012
2013
2012
2013
2012
2013
2012
2013
Q4
Europe (local currency) ₤ millions
2013
2014
Q1
+5%
+5%
+4%
-3%
-12%
+14%
+4%
+7%
+12%
+13%
+14%
+7%
+9%
+11%
+6%
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Local
Search
Travel
North America Revenue by Type $ millions
17.5 14.9 17.2
5.7
3.8 3.9
6.7
6.8 5.3
Q1 2013 Q4 2013 Q1 2014
Highlights • Travel – Q/Q 15% seasonal
increase; Y/Y 1% decrease driven by lower Getaways revenue and lower spending by certain online booking engines and international airlines.
• Search – Q/Q flat; Y/Y 32% decrease due to reduced marketing spend and user migrations to mobile devices, which currently monetizes lower than website visits.
• Local – Q/Q 23% decline; Y/Y 22% decrease driven by weak voucher sales.
29.9
26.4 Y/Y %
Change Q/Q %
Change
(22%)
(32%)
(1%)
(23%)
–
15%
25.6
North America revenue is down year-over-year due to a planned reduction of Search marketing spend and lower voucher sales.
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Local
Search
Travel
Europe Revenue by Type $ millions
Highlights • Travel – Q/Q 26% increase
due to seasonality. Y/Y 20% increase driven by increased advertising by travel agencies, booking engines and vacation packagers and growing Getaways revenue.
• Search – Q/Q 35% increase; Y/Y 12% increase due to expansion of advertiser base to Search.
• Local – Q/Q 27% decrease; Y/Y 21% decrease, both due to declining voucher sales.
Y/Y % Change
Q/Q % Change
20%
12% (21%)
35% (27%)
26%
Europe revenue growth is driven by a 20% year-over-year increase in Travel revenue.
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9.3 8.9 11.2
0.9 0.7
1.0 2.1 2.3
1.7
Q1 2013 Q4 2013 Q1 2014
12.3
13.8
11.9
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Year-over-Year Comparisons
Q1 2014 ($ millions)
Comparison: Q1 2013 ($ millions)
Operating income North America
Operating income Europe
Operating income
Income taxes
Net income Other income
0.1
(2.5) 4.6
2.4 4.6
7.0
0.1 (2.5) 5.6 2.5 5.5 8.0
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North America and Europe segments maintained profitability despite lower revenues and continued investments.
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Q1 2013 Q4 2013 Q1 2014
Cost of Revenue as percentage of revenue
Subscriber refunds
Customer service
Credit card processing
Other
9.4%
12.5% 11.9%
Local
Operating Margin as percentage of revenue
Q1 2013 Q4 2013 Q1 2014
19.1%
11.9
17.4%
Cost of revenue year-over-year increase is due to syndicated deal costs, customer service and refund costs. Operating margin is seasonally higher than prior quarter.
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
13.7 11.5
7.6
6.9
Q1 2013 Q1 2014
Operating Expenses $ millions and as percentage of revenue
General & Administrative
Sales & Marketing
21.3
25%
46%
71%
North America business segment
Reduction in North America operating expense is due primarily to a planned reduction of Search marketing spend and lower bonus compensation.
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70%
26%
44%
18.3
6.0 6.4
3.2 3.7
Q1 2013 Q1 2014
9.2
26%
49%
75%
Europe business segment
73%
27%
10.1
46%
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
230 230 256 260 272 284 286 281 281
130 144 151 157 153
160 162 155 163
360 374 407 417 425
444 448 436 444
Selective headcount additions in Europe.
Headcount and Average Annualized Revenue per Employee
Headcount
Europe
North America
Average annualized revenue per employee ($ thousands)
$333 $437 $420 $348 $356 $397 $372 $344 $362
Q1 2014 Q2 2013 Q1 2013 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Q3 2013 Q4 2013
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Cash position decreases due to stock repurchases*, while collections remained solid.
34 35 36
Q1 2013 Q4 2013 Q1 2014
65.1 66.3 61.0
Q1 2013 Q4 2013 Q1 2014
DSO and Cash Balances
DSO (Days Sales Outstanding) # of days
Cash Balance at End of Quarter** $ millions
* Stock repurchases during Q1 2014 amounted to $5.6 million. ** Includes cash and cash equivalents
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
First Quarter 2014 Performance Summary
• Solid revenue growth in Europe Travel offset by lower Search and Local revenue in North America.
• Investments continue in product, including hotel booking capability.
• Cash position decreases due to stock repurchases, while collections remained solid.
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Part 1: First Quarter 2014 Performance
Part 2: Growth Strategy Overview
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Annual revenue per subscriber* US$ per subscriber
* Defined as year to date revenue divided by the number of subscribers at beginning of year. ** North America and Europe only. Asia Pacific operated by a licensee.
23.6 million Number of subscribers**
$6.91*
Strategic Elements:
1. Audience: Grow subscribers, but also mobile users, Facebook fans, and Twitter followers.
2. Products: Enhance our products to enable users to search ‘what’, ‘where’ and ‘when’, particularly on mobile and for hotels.
We remain confident in our business model and long term opportunity, as we are making investments to drive future growth.
Long-term growth in our business is driven by people, our audience, and products.
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Travelzoo
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Q1 2013 Q2 3013 Q3 3013 Q4 3013 Q1 2014
Year
Beginning of Year
Subscribers Revenue per
Subscriber Revenue
2005 8.1 million $6.23 $51 million
2006 9.7 million $7.19 $69 million
2007 10.9 million $7.25 $79 million
2008 12.4 million $6.56 $81 million
2009 13.5 million $6.96 $94 million
2010 16.8 million $6.69 $113 million
2011 18.9 million $7.85 $148 million
2012 21.5 million $7.04 $151 million
2013 22.5 million $7.05 $158 million
Q1 2014 23.3 million** $6.91* $161 million***
Future Opportunity
30 million $7.00 $210 million
35 million $7.00 $245 million
Travelzoo’s past has shown that subscriber growth drives overall revenue growth…
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* Defined as year to date revenue divided by the number of subscribers at the beginning of year ** Quarter-end subscribers *** Revenue per subscriber multiplied by quarter-end subscribers.
Mobile app downloads
Facebook & Twitter Fans
We are changing the way we communicate with our audience as media consumption shifts to mobile & social
3+ million mobile app downloads
2 million social media followers
Strategic Element 1: Audience Grow and actively engage audience across all media.
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Strategic Element 2: Products We initiated a performance review of our Search business.
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Recent trends affecting SuperSearch
• Challenging and more competitive traffic acquisition on search engines
• Consumers move increasingly to mobile devices, where SuperSearch is not present and monetization is currently lower than desktop
• Deteriorating economics in flight comparison; hotel search remains more profitable
$29.1 $27.3 $24.0
2011 2012 2013
Observations from our review so far
• Travelzoo Search is an important element of our strategy, we will continue to offer a Search product, to drive
– Revenue
– Profit
– Subscriber growth
– Airfare deals content
– Interest in more profitable, non-Search content, such as hotels
• Mobile is an increasingly important aspect of our business, we do not offer SuperSearch on mobile.
• Bidding for traffic has become very competitive. As we look to improve profitability by reducing bids, we expect our revenue to decrease by $1.5 million to $2.0 million in Q2 year-over-year.
Search revenue has been declining (includes SuperSearch and Fly.com)
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Strategic Element 2: Products We are investing in a hotel booking platform.
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Investment thesis
Consumer view on current state
• Consumers can only “do business” with Travelzoo if we have a deal where and when they want to go.
• Loyal Travelzoo subscribers book “full price” hotel stays on other websites because Travelzoo does not offer such a service.
• Many subscribers do not want the “hassle” of booking a voucher.
• Booking deals via mobile phones on third-party sites remains difficult.
Travelzoo view on current state
• We do not currently participate in the “upside” of peak season, e.g.
Off-Peak hotel booking [Illustrative] $100 x 15% = $15
Peak hotel booking [Illustrative] $200 x 15% = $30
• Hotels limit their activity with Travelzoo because advertising budgets are fixed.
• Smaller hotels do not have mobile booking capability.
Hotel view on current state
• Hotels only offer off-season deals on Travelzoo one to four weeks per year, for very limited dates.
• Many hotels do not work with Travelzoo because we do not offer a commission model or we do not help with ‘full price’ business.
• A large number hotels are not able, or do not want, to work with voucher formats.
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Strategic Element 2: Products What we have seen in our beta test period.
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Beta test highlights
Consumer data points from beta test
• Approximately 200,000 select subscribers have now accessed the booking engine.
• Among those subscribers who booked in our one-month beta test period:
– 84% did not book a Getaway in the past two years.
– Average hotel revenue was 300% greater during the one-month beta test period, when compared to their average full-year hotel revenue in 2012 and 2013.
Hotel data points from beta test
• 46% of bookings were at “full price”, the rest were “deals”.
• 56% of participating hotels have not run a deal on Travelzoo in 2 or more years because they cannot participate in the voucher or advertising model.
• Renewed hotel relationships -
e.g. The Boulders, a Waldorf Astoria Hotel
– has not run on Travelzoo since 2011; achieved over 350 bookings in beta test.
e.g. Hilton, New York Midtown
– ran one week on Travelzoo since 2004; achieved over 300 bookings in beta test.
Total hotel revenue from subscribers who booked
0102030405060
2012 2013 Mar-14
Total hotel revenue per subscriber includes Getaways, hotel advertising clicks and booking engine commissions among those subscribers who booked in hotel booking engine during beta test period.
$14 $13
$54
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Strategic Element 2: Products We have begun user testing and will ramp through 2014.
• Fine-tune UX for web and mobile
• Ramp up hotel contracts/develop hotel content
• Expand hotel connectors to add more hotels
• Begin beta testing
Q1 2014
• Continue to enhance UX and connectors
• Enhance rates and selection
• Message deals & ‘any time’ bookings to broader audience
• Learn from subscribers and hotels, update as necessary
Q2 2014
• Roll-out new platform across the board and all devices
• Aggressively ramp up:
– ‘Any time’ booking message
– Number of hotels
– Number of deals
– Booking revenues*, particularly from mobile users.
Q3 – Q4 2014
Q1 impact on expenses was ~$800,000 or ~$0.04 EPS
impact with no significant revenue benefit
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Q2 impact on expenses expected to be ~$1.1 million or ~$0.05 EPS
impact with no significant revenue benefit*
* Revenues for hotel bookings made with Travelzoo will be recognized after the hotel stay is completed. Currently, we see an average 60 – 70 day time lag between booking and stay.
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Hotel Voucher and Advertising Formats (Getaways)
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Bookings on our hotel platform generate revenues later than voucher sales, as Travelzoo acts as an agent and collects commissions after the actual stay.
User purchases voucher. Credit card charged by Travelzoo.
User books hotel on Travelzoo website.
Booking made & Revenue recognition (minus allowance for refunds)
User redeems voucher at hotel.
Hotel Booking Platform (Agent Model)
Guest stays & Revenue recognition
User pays for hotel stay at check-out. Hotel pays Travelzoo a commission.
Average of 60-70
days
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
We continue to believe that deal quality drives subscriber loyalty and that our quality-leadership positions us well for long-term success.
Top 20® list This week's most outstanding travel, entertainment and local deals, researched and tested.
Outstanding Travel Deals We feature deals at Travel + Leisure's World's Best 500 and Conde Nast Traveler's Gold List.
High-Quality Local Deals Highly rated restaurants, luxe spas, top shows and exciting local adventures.
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Management Focus for 2014
Maintain our quality leadership position by publishing high-quality deals and tightening brand control.
Resume top-line revenue growth by investing in:
• Audience growth and engagement, across email, web, social and mobile.
• Products that simplify and improve our business, particularly our online booking capability for hotels and our mobile products.
Continue to increase sales force productivity.
Invest for future growth while remaining profitable.
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www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
APPENDIX
www.travelzoo.com Q1 2014 Performance and Growth Strategy Overview
Travelzoo Inc. Revenue by Segment and Type - Quarterly and Year to Date (in thousands except for percentages)
North America Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14
Travel 15,546 14,591 12,606 13,894 17,491 16,463 14,939 14,919 17,229 Q/Q growth rate 8% -6% -14% 10% 26% -6% -9% 0% 15% Y/Y growth rate -4% 3% -4% -3% 13% 13% 19% 7% -1%
Search 6,005 5,985 5,737 5,374 5,703 5,980 5,173 3,849 3,854 Q/Q growth rate 29% 0% -4% -6% 6% 5% -14% -26% 0% Y/Y growth rate 1% -6% -18% 15% -5% 0% -10% -28% -32%
Local 7,005 8,136 6,804 7,105 6,718 7,806 6,096 6,818 5,270 Q/Q growth rate 8% 16% -16% 4% -5% 16% -22% 12% -23% Y/Y growth rate 30% 15% -13% 9% -4% -4% -10% -4% -22%
Total North America Revenues 28,556 28,712 25,147 26,373 29,911 30,249 26,208 25,586 26,353 Q/Q growth rate 12% 1% -12% 5% 13% 1% -13% -2% 3% Y/Y growth rate 4% 4% -10% 3% 5% 5% 4% -3% -12%
Europe Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14
Travel 7,393 7,543 7,368 7,540 9,292 8,182 8,298 8,863 11,193 Q/Q growth rate 20% 2% -2% 2% 23% -12% 1% 7% 26% Y/Y growth rate 1% 8% 6% 23% 26% 8% 13% 18% 20%
Search 1,290 1,012 1,026 821 870 840 828 725 979
Q/Q growth rate 13% -22% 1% -20% 6% -3% -1% -12% 35% Y/Y growth rate 35% -24% -38% -28% -33% -17% -19% -12% 12%
Local 2,094 2,093 1,906 2,295 2,104 2,055 1,921 2,300 1,670
Q/Q growth rate -11% 0% -9% 20% -8% -2% -7% 20% -27% Y/Y growth rate 82% 28% -10% -3% 0% -2% 1% 0% -21%
Total Europe Revenues 10,777 10,648 10,300 10,655 12,266 11,078 11,047 11,889 13,842 Q/Q growth rate 12% -1% -3% 3% 15% -10% 0% 8% 16% Y/Y growth rate 14% 7% -4% 10% 14% 4% 7% 12% 13%
Total Consolidated Revenues 39,333 39,360 35,447 37,028 42,177 41,327 37,256 37,475 40,195 Q/Q growth rate 12% 0% -10% 4% 14% -2% -10% 1% 7% Y/Y growth rate 6% 5% -8% 5% 7% 5% 5% 1% -5%
Consolidated Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14
Travel 22,939 22,134 19,974 21,433 26,783 24,645 23,238 23,782 28,423 Q/Q growth rate 12% -4% -10% 7% 25% -8% -6% 2% 20% Y/Y growth rate -2% 5% -1% 5% 17% 11% 16% 11% 6%
Search 7,295 6,997 6,763 6,195 6,573 6,821 6,001 4,574 4,833 Q/Q growth rate 26% -4% -3% -8% 6% 4% -12% -24% 6% Y/Y growth rate 6% -9% -22% 7% -10% -3% -11% -26% -26%
Local 9,099 10,230 8,710 9,400 8,822 9,861 8,017 9,119 6,940 Q/Q growth rate 3% 12% -15% 8% -6% 12% -19% 14% -24% Y/Y growth rate 39% 17% -12% 6% -3% -4% -8% -3% -21%
Total Consolidated Revenues 39,333 39,360 35,447 37,028 42,177 41,327 37,256 37,475 40,195 Q/Q growth rate 12% 0% -10% 4% 14% -2% -10% 1% 7% Y/Y growth rate 6% 5% -8% 5% 7% 5% 5% 1% -5%
(1) Travel includes travel publications (Top 20, Website, Newsflash, Network) and Getaway vouchers (2) Search includes SuperSearch and Fly.com (3) Local includes Local Deals vouchers and Entertainment non-vouchers
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