Earnings Labs

Travelzoo (TZOO)

Q4 2012 Earnings Call· Thu, Jan 24, 2013

$10.47

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Transcript

Operator

Operator

Good morning everyone and welcome to the Travelzoo Fourth Quarter 2012 Financial Results Conference Call. At this time, all participants have been placed in 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.

Chris Loughlin

Management

Thank you, operator. Good morning and thank you for joining us today on Travelzoo’s fourth quarter 2012 financial results conference call. I am 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

Management

Thank you Chris and good morning everyone. Thank you for joining us. 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 materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in our Form’s 10-Q and 10-K 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 press release issued earlier this morning along with the slides that accompany today's prepared remarks. An archived recording of this conference call will be available on the Travelzoo investor relations website at www.travelzoo.com/ir beginning app 90 minutes after the conclusion of this call. For the format of today's call, I will review our fourth quarter financial results and then Chris will provide you an update on our strategy. Thereafter, we will open up the call for our question-and-answer session. Now please open our management presentation to follow along with our prepared remarks. The presentation is available at www.travelzoo.com/earnings. Slide three provides the key financial highlights for the quarter. Our revenue came in at $37 million this quarter representing a 5% year-over-year growth. Our earnings per share this quarter was $0.24 which is lower than prior years due to our investments in sales force expansion, marketing and our hotel booking platform. In addition, we saw growth in new subscribers. Slide four highlights the revenue by segment. Revenue in North…

Chris Loughlin

Management

Thank you, Glen and hello again everybody. As Glen highlighted, we are very pleased with the solid quarter and confident in both our business model and our investments in people, audience and products. These are the inputs that will drive future growth. Indeed, we are entering our 15th year of business prudent investment has guided us to a decade and a half of profitable growth. For those new to the Travelzoo story, you should know that this business was started with less than $50,000 in 1998. For our entire history we’ve been very focused on profitability. We have demonstrated now standing return on assets. We are very thoughtful of our investment strategy and we balance our desire to grow for the long term with a keen eye on the bottomline. The chart on the left shows you how our business grows. On the X axis you can see we are growing our subscribers. On the Y axis, we are increasing our revenue per subscriber overtime. Our current investment strategy is focused in three areas. First, we are growing our sales force. This allows us to work with more businesses and publish more deals. Second, we are investing in our audience growth, not just by expanding our traditional email subscriber base, but by increasing our Facebook fans, Twitter followers and downloads to our iPhone and Android Apps. And third, we are investing in product development. We are focused on improving our engagement and conversion levels and enhancing our product in mobile and hotels. Let's turn to the next slide and review how we are doing. Slide 15 highlights our progress against our sales force expansion plan. As Glen mentioned at the end of Q1 we set a goal of hiring 50 additional sales staff worldwide to drive future revenue growth. On…

Operator

Operator

(Operator Instructions) Our first question comes from the line of Dan Kurnos from the Benchmark Company.

Dan Kurnos - Benchmark Company

Analyst

Just the few things from me, in terms of unduplicated subs, growth was a little bit muted sequentially although, you didn't call out some pullback and spend in Europe. Just wondering what should we expect in terms of growth going forward, should we expect to see it accelerate through 2013 and which channels have you guys found most effective so far?

Chris Loughlin

Management

We were very pleased actually with the audience particularly on Facebook in Q4. We added over 200,000 fans and we saw highest engagement level we have seen with 60,000 posts to comments, that was the key focus for us in the quarter. And we are beginning to look holistically at our interactions with our audience. So, while traditionally Travelzoo has been about the-mail interaction. We are seeing real benefits through social media, Facebook, Twitter and mobile. We plan to keep our foot on the accelerator with our investment but obviously we will pullback, if we are unable to pull off our profit targets.

Dan Kurnos - Benchmark Company

Analyst

Okay, great. And then on travel, could you maybe give us some more color on how much of the 23% growth in Europe was getaways versus your traditional travel model. Then on, just on getaways in general maybe if you could give us sort of a broad brush picture of how much runway you think you have in the getaways markets and which geographies look most promising to you near-term?

Chris Loughlin

Management

Glen, do you want to answer first half of the question, I can talk a bit more about the markets and so forth.

Glen Ceremony

Management

Sure Dan. So you are saying that 23%, we don't split out the getaways portion, but a significant piece of that is the getaways. So we are pleased with the growth that overall growth is 65% and on the getaways overall helps Europe as well, but not entirely that in Europe, so we are happy with that kind of curve there in Q4 of 23%. Does that answer your question? Yeah, go ahead Chris.

Chris Loughlin

Management

Yeah and the runway is this, I said this on the last call. At the moment what we are doing is we’re sending out a getaway to a subscriber, the subscriber we have a great relationship with and they may or may not wish to purchase that particular getaway. If that person comes to our website and wants to find a deal on a specific date that's quite difficult for them to do and its even more difficult on our mobile app. So one of the runways is actually just providing better visibility to the opportunities for those who want to go, that's the whole idea around our hotel booking platform. Another opportunity within that business is that one of the key reasons why people are refunding is because they can't get the dates they want. They’ll buy a voucher and then they can't get the date that they want. By having the hotel booking system we can give you date visibility right away. We are obviously ramping our sales force and that does mean that we are bringing on more territories. We are now publishing deals down in Tennessee and in and around Nashville, which were not classically a focus for Travelzoo. So we will continue to do that and also I think you will start to see people being able to just by getting better access to information we hope to see improved conversion rates overall.

Dan Kurnos - Benchmark Company

Analyst

All right and then turning to local it looks like we've seen sort of at the standard slower start to the year particularly in the U.K., but obviously had a pretty strong Q4. I'm just curious how you feel about where you are in local and general. I know you talked about the analytics changes and you are still ramping headcount, but maybe go into some color on some of the other changes you are making to improve conversion rates and get more attention on the local side?

Chris Loughlin

Management

Well I mean, the conversion rates we’re incredibly happy with to see such an improvement of 16% and that was a real concerted effort. The other thing we've tested in the purchase parts is reviews which we tested in the U.K. that was very positive. So people could actually see what other people saw of the place we are recommending. So over time reviews will play a bigger role in our business. We've collected over 60,000 reviews in our first quarter so that's positive. The other thing we saw in local is an increase revenue on mobile for those local deals and one of our key ideas around these local deals is that we have a lot of travelers and we need to do a better job of communicating and messaging to those travelers that when they get to Las Vegas they get to San Diego we've got great deals that they can buy. We already see, I mean it’s a significant portion of our business but that will be a big focus for us. You will notice on the side that there are some deals that are what we call always on, so they maybe on for a couple of months. We might not send those deals out via email, really there because we're expecting tourists to use them and we're pretty excited about what that could mean for us.

Dan Kurnos - Benchmark Company

Analyst

You mentioned in your prepared remarks that you want to see increased performance from the existing headcount. So I am just curious what you are doing to improve efficiencies internally and I am just also curious on how you see the availability of new talent.

Chris Loughlin

Management

On improving efficiency, I mean that’s something that we've been focused on, you know from the first day I walked in [head] through 13 years ago. We're very, very focused in this business on getting maximum efficiency, but you know it does take time for people to ramp up and yes we hired in 30 sales people. If you look at our overall headcount, we hired 71 people. So that’s really 71 people who either that there is some way of reaching productivity and of course you got attrition in there as well, which doesn’t come in to that 71. So there is probably a 100 people in this business who joined in the last 12 months and they are getting up to the highest level of productivity. On the sales side, we always say, you know, 6 to 12 months and then how we're monitoring that, we tend to group into groups of what we call vast [TJV] and then we have our beginners and we watch how people move through that cohort overtime. I think we're pretty good at that and we will continue to focus on it.

Dan Kurnos - Benchmark Company

Analyst

And on the availability of the talent pool?

Chris Loughlin

Management

Yes, it's been, it’s actually been pretty good for us. We have a solid profitable business and our offices are in markets for example in New York, or Austin, or Chicago where many of the people in our industry work for competitors. So we have been able to pull quite a few fantastic people into the business, so we are pretty pleased.

Dan Kurnos - Benchmark Company

Analyst

Then only one more from me if you don’t mind, I just was curious if there are any differences so when you do launch the hotel bookings platform if we should expect to see any differences in the economics between the bookings platform and say the getaways model.

Chris Loughlin

Management

Well there may well be, I think it’s too early to say. The idea was not turnoff getaways and then launch (inaudible). We will take our time, we will run some tests and then once we fully have got our arms around it then we will certainly let you know, but it’s not going to be exactly the same as getaways because we are enabling people to book. For example if you want to book in a hotel in New York this weekend through a booking engine it might be slightly different than buying a voucher.

Dan Kurnos - Benchmark Company

Analyst

All right, great thanks a lot guys.

Operator

Operator

Thank you. And our next question comes from the line of Ed Woo, Ascendiant Capital.

Ed Woo - Ascendiant Capital

Analyst

I had a question regarding the current state of the competition. Do you see any big changes in Q4 and also how will you characterize the current state of the travel market?

Chris Loughlin

Management

Hi, Ed. Current state of competition one of the best things I have ever done and I wish I had done it earlier as I spent most of my December speaking to our subscribers. What I can tell you is from their perspective at least the ones I spoke with Travelzoo has higher quality deals that's the first thing. The second thing is the Travelzoo doesn't send to many emails and third thing is the content in general that I am sending is what the subscribers thought they signed up for. So I can't really say how those businesses are doing, but from our subscribers perspective the teams that it seems that they get a little tired of receiving JVC speaker set and the next minute a bikini wax and its sort of all over the place. We said that two or three years ago, you know in publishing you need to be somewhat focused. I mean, the financial times its successful because it delivers what they say they deliver. We have been quite disciplined in staying focused on travel and leisure, and I think that’s appreciated by the subscribers. You know as far as talent there is a lot of people, and we’ve just talked about that, but lot of people who are interested in moving to a new business now and Travelzoo is one of the obvious candidates, that these people might want to move to after spending two or three years at one of the other companies. So that's how I see it. And of course those businesses are also realizing themselves that at some point they have to become profitable. So that sort of levels are playing towards a little bit for us.

Ed Woo - Ascendiant Capital

Analyst

So you haven't seen any big changes in either the economics of a deal being able to sign up new customers or new suppliers, new businesses etcetera?

Chris Loughlin

Management

Not fundamentally, and we have seen some of the smaller players go, we have seen some of the rational behavior stop, zero commissions or paying for a bill board for a restaurant just to get a deal. That seems to have stopped, but fundamentally I don't see I don't see any other significant changes.

Ed Woo - Ascendiant Capital

Analyst

Okay. And how would you characterize the current travel market right now, it seems like everything used to be steadily improving slightly in the US and Europe?

Chris Loughlin

Management

I think that that's a good way to put it, its steadily improving. I think that advertisers are keen to get a head start and make sure that, there is currently no scary news anyway so that's kind of the good thing and when there's scary news about economies or natural disasters people tend to not book their travel and so there is no scary news right now which means that travel companies should really make hay while the sun shines and so I think in general everyone is quite positive.

Ed Woo - Ascendiant Capital

Analyst

That's good to hear. I'll keep my fingers crossed that there is nothing major as well. Then also going into your comments about how you are making some investments in this booking engine, are you no longer primarily interested in acquiring booking engine, are you guys going to develop this yourself? And we see that the investment you did in the fourth quarter was about $0.03, is that probably similar to the investments that you will be making over the next couple of quarters?

Chris Loughlin

Management

We did a couple of things in the fourth quarter. One is we bought the assets of a booking engine company and that was the actual website was called Perfect Escapes. So we took that in, we took a group of people who we think are terrific and we are currently overhauling the system and we are looking at how we integrate into our products. We think that the development process takes probably the next five months to sort of get the initial framework that sort of the heavy lifting. So, I think it would be fair to say that the investment level will be similar or a little bit more than we've had over the next six months and then hopefully its done then we build and we go. And of course those people who we did bring in, I mean there's no revenue coming from that product today, so by the time we get to Q3 and Q4 we expect that we should be seeing some decent revenue coming from it.

Ed Woo - Ascendiant Capital

Analyst

Great. And my last question is last couple of quarters ago mentioned you guys were going to make a big investment in marketing, are we seeing that investment being spent currently and how do you view the ROI so far?

Chris Loughlin

Management

We increased our investment in subscribing marketing. I think the number was again it was $600,000 year-on-year.

Ed Woo - Ascendiant Capital

Analyst

Yeah.

Chris Loughlin

Management

So we increased by $600,000 but this opportunity came up with this booking engine and these people and its not just about spending the money effectively, its also about management time and so a few of us were really heads down and making sure we secure those assets and bringing these new folks and setting a track for the hotel booking platform. The other thing we focused a lot of energy on which in the end didn't cost us as much as we thought it would, it was on the Facebook thing. So there we brought in 200,000 new fans and the overall acquisition costs are significantly less than what we might have thought it would be. So that would love to continue that in the future. We will see if we can but in general, we are keen to grow our audience on the-mail, some subscribers but also on Facebook and on mobile.

Operator

Operator

Thank you. (Operator Instructions) Our next question comes from the line of [Craig Baum from Harvest Capital].

Unidentified Analyst

Analyst

I guys, thanks for taking my questions. So I have two questions. What drove First, what drove this search growth in the U.S. Was that SuperSearch or fly.com and then how does the profitability of search compared to travel and local and then I have one follow up?

Chris Loughlin

Management

Glenn, would you please answer these questions, and hi Craig.

Glen Ceremony

Management

Sure, yeah, in North America you're talking about, for search and in the growth on that. So that growth in that is obviously is tied to the spending level and like I said in the comments, we increased our spend relatively to last Q4 and I would say, we don't break out the SuperSearch versus Fly but you know, the spend between those two was increased this quarter. So we just felt it was a relative better market to spend this quarter for that. What is your second question, Craig?

Unidentified Analyst

Analyst

The second one here was just how the profitability of the search compared to (inaudible) local segment?

Glen Ceremony

Management

I would say that varies. It has quite a bit but it's less than those two other businesses, relatively.

Unidentified Analyst

Analyst

Okay, and just one point of clarification. Looks like you guys repurchased a decent chunk of shares in the quarter. Glad to see you guys have enough confidence in the business to be buying back your stock. Just curious, I know the weighted average shares on an exact number, given the timing of repurchases in the quarter but based on the information available, looks like you spent $7.9 million to repurchase about 260,000 shares, so I get an average price of about $30 am I missing something or why does that look like the repurchases were at such a high price?

Glen Ceremony

Management

Shares are higher than that they're in the order of they were cumulatively 600,000 shares and I think we disclosed last quarter we bought back about a little over 160,000 so about 439 or 440 shares.

Unidentified Analyst

Analyst

All right.

Glen Ceremony

Management

Yeah.

Operator

Operator

Great. Okay, thank you. And we have no further questions I would like to turn the conference back for any concluding remarks.

Chris Loughlin

Management

Ladies and gentlemen thank you for your time and support we wish you a prosperous new year and we look forward to speaking with you again in the future. Have a nice day. Thank you.

Operator

Operator

Thank you. Ladies and gentlemen this concludes today's teleconference. You may disconnect your lines at this time and have a nice day.