Travelzoo Reports Second Quarter 2014 Results

  Travelzoo Reports Second Quarter 2014 Results

Business Wire

NEW YORK -- July 17, 2014

Travelzoo Inc. (NASDAQ:TZOO):

  *Revenue of $36.9 million, down 11% year-over-year
  *Operating profit of $10.1 million, up 30% year-over-year
  *Non-GAAP earnings per share of $0.30, compared to $0.34 in the prior-year
    period
  *Cash used in operations of $509,000

Travelzoo Inc., a global Internet media company, today announced financial
results for the second quarter ended June30, 2014, with revenue of $36.9
million, a decrease of 11% year-over-year. Net income was $7.9 million, with
earnings per share of $0.54. Non-GAAP net income was $4.4 million, with
non-GAAP earnings per share of $0.30. Non-GAAP net income and non-GAAP
earnings per share exclude a $3.5 million release of reserve for Travelzoo
Inc.'s anticipated settlement agreements in connection with a dispute over
unclaimed property audits.

"In North America, our revenues declined due to lower Local and Search
revenues, as previously announced. In Europe, our revenues and operating
income increased. Europe contributed 43% of our operating income this
quarter," said Chris Loughlin, chief executive officer. "We continue to invest
in mobile products and in our new hotel booking platform."

North America

North America business segment revenue decreased 17% year-over-year to $25.2
million. Non-GAAP operating profit for the second quarter was $3.8 million, or
15% of revenue, down from $5.9 million, or 20% of revenue, in the prior-year
period.

Europe

Europe business segment revenue increased 6% year-over-year to $11.7 million.
In local currency terms, revenue decreased 4% year-over-year. Non-GAAP
operating profit for the second quarter was $2.9 million, or 24% of revenue,
up from $1.9 million, or 17% of revenue in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of subscribers in North America and
Europe of 23.7 million as of June30, 2014, up 3% from June30, 2013. In North
America, total unduplicated number of subscribers was 16.7 million as of
June30, 2014, up 2% from June30, 2013. In Europe, total unduplicated number
of subscribers was 7.0 million as of June30, 2014, up 6% from June30, 2013.

Update on Hotel Booking Platform

Travelzoo began testing its new hotel booking platform in North America in
April on desktop and in June on mobile. In the second quarter, the booking
engine was presented to a limited number of Travelzoo subscribers. Booking
revenue is recognized upon stay, which is typically 40 to 50 days after the
booking occurs.

Income Taxes

Income tax expense was $2.3 million, compared to $2.7 million in the
prior-year period. The effective income tax rate, as calculated on the basis
of non-GAAP income before taxes, was 34%, consistent with prior-year period.

Asset Management

During the second quarter of 2014, Travelzoo used $509,000 of cash from
operating activities primarily due to new terms with Local Deals merchants
which resulted in faster payments. Accounts receivable increased by $1.1
million over the prior-year period to $16.5 million. Accounts payable
decreased by $4.8 million over the prior-year period to $24.1 million. Capital
expenditures were $405,000, down from $1.2 million in the prior-year period.
As of June30, 2014, cash and cash equivalents were $60.5 million.

Non-GAAP Information

To give an enhanced view of Travelzoo's operating performance, management has
calculated non-GAAP operating expense, non-GAAP North America operating
profit, non-GAAP operating profit, non-GAAP operating margin, non-GAAP
effective tax rate, non-GAAP net income and non-GAAP earnings per share by
excluding the release of reserve related to our unexchanged promotional
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 information. As the only difference between GAAP and
non-GAAP information is the release of reserve related to our unexchanged
promotional shares, 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.

Conference Call

Travelzoo will host a conference call to discuss second 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 27million
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. 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 ended        Six months ended
                               June 30,                  June 30,
                               2014        2013         2014        2013
Revenues                       $ 36,883     $ 41,327     $ 77,078     $ 83,504
Cost of revenues               4,374       4,425       9,151       8,411
Gross profit                   32,509      36,902      67,927      75,093
Operating expenses:
Sales and marketing            15,305       19,457       33,148       39,115
General and administrative     10,570       9,651        21,148       20,149
Unexchanged promotional        (3,500   )   —           (3,500   )   —
shares
Total operating expenses       22,375      29,108      50,796      59,264
Income from operations         10,134       7,794        17,131       15,829
Other income                   56          112         177         144
Income before income taxes     10,190       7,906        17,308       15,973
Income taxes                   2,266       2,706       4,747       5,178
Net income                     $ 7,924     $ 5,200     $ 12,561    $ 10,795
Net income per share:                                           
Basic                          $ 0.54      $ 0.34      $ 0.85      $ 0.70
Diluted                        $ 0.54      $ 0.34      $ 0.84      $ 0.70
Weighted average shares:
Basic                          14,734       15,362       14,806       15,362
Diluted                        14,794       15,457       14,881       15,427
                                                                      


Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
                                                               
                                               June 30,           December 31,
                                               2014               2013
Assets
Current assets:
Cash and cash equivalents                      $    60,502     $  66,223
Accounts receivable, net                       16,529             13,986
Income taxes receivable                        2,015              2,656
Deposits                                       287                396
Prepaid expenses and other current assets      2,066              3,202
Deferred tax assets                            1,216              1,143
Restricted cash                                —                  200
Funds held for reverse/forward stock split     199               13,668     
Total current assets                           82,814             101,474
Deposits                                       1,183              1,168
Deferred tax assets                            2,476              2,032
Restricted cash                                1,478              1,479
Property and equipment, net                    9,668              8,245
Intangible assets, net                         298               404        
Total assets                                   $    97,917    $  114,802 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable                               $       24,108     $  31,766
Accrued expenses and other                     9,100              10,824
Deferred revenue                               1,801              1,578
Income tax payable                             1,699              —
Reserve for unexchanged promotional shares     8,000              12,726
Payable to shareholders for reverse/forward    199               13,668     
stock split
Total current liabilities                      44,907             70,562
Long-term tax liabilities                      10,660             10,436
Long term deferred rent and other              3,419             2,469      
Total liabilities                              58,986            83,467     
Common stock                                   163                163
Treasury stock                                 (21,517        )   (15,662    )
Additional paid-in capital                     11,037             10,247
Accumulated other comprehensive loss           (83            )   (530       )
Retained earnings                              49,331            37,117     
Total stockholders’ equity                     38,931            31,335     
Total liabilities and stockholders’ equity     $    97,917    $  114,802 
                                                                     


Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
                                                    
                             Three months ended        Six months ended
                             June 30,                 June 30,
                             2014        2013         2014        2013
Cash flows from operating
activities:
Net income                   $ 7,924      $ 5,200      $ 12,561     $ 10,795
Adjustments to reconcile
net income to net cash
provided
by (used in) operating
activities:
Depreciation and             640          760          1,342        1,476
amortization
Impairment of software       249          —            249          —
Deferred income taxes        (584     )   207          (508     )   400
Stock-based compensation     395          307          790          613
Provision for losses on      41           (45      )   (11      )   50
accounts receivable
Net foreign currency         (6       )   19           (36      )   112
effects
Changes in operating
assets and liabilities:
Accounts receivable          (1,123   )   (91      )   (2,411   )   (2,127   )
Deposits                     27           175          160          20
Income tax receivable        (717     )   2,029        549          3,593
Prepaid expenses and other   60           (1,382   )   564          (1,032   )
current assets
Accounts payable             (4,350   )   1,965        (7,389   )   845
Accrued expenses and other   (740     )   263          (1,920   )   485
Income tax payable           1,061        467          1,783        1,038
Reserve for unexchanged      (3,500   )   —            (4,726   )   —
promotional shares
Other non-current            114         107         225         210      
liabilities
Net cash provided by (used   (509     )   9,981       1,222       16,478   
in) operating activities
Cash flows from investing
activities:
Release (purchase) of        —            (263     )   200          (263     )
restricted cash
Purchases of property and    (405     )   (1,209   )   (1,424   )   (2,109   )
equipment
Net cash used in investing   (405     )   (1,472   )   (1,224   )   (2,372   )
activities
Cash flows from financing
activities:
Repurchase of common stock   (287     )   —            (5,855   )   —
Reverse/forward stock
split, including             —           —           (479     )   —        
transaction
costs
Net cash used in financing   (287     )   —           (6,334   )   —        
activities
Effect of exchange rate on   668         (235     )   615         (1,894   )
cash and cash equivalents
Net increase (decrease) in   (533     )   8,274        (5,721   )   12,212
cash and cash equivalents
Cash and cash equivalents    61,035      65,107      66,223      61,169   
at beginning of period
Cash and cash equivalents    $ 60,502    $ 73,381    $ 60,502    $ 73,381 
at end of period
Supplemental disclosure of
cash flow information:
Cash paid for income         $ 2,508      $ 10         $ 2,843      $ 20
taxes, net
                                                                      


Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
                                                             
Three months    North                               Elimination
ended June      America            Europe           and Other     Consolidated
30, 2014                                            (a)
Revenue from
unaffiliated    $    25,175     $   11,708     $  —          $   36,883
customers
                                                                  
Intersegment    302               129             (431      )   —
revenue
Total net       25,477            11,837          (431      )   36,883
revenues
Operating       $    3,771     $   2,863     $  3,500     $   10,134
income
Three months    North                               Elimination
ended June      America            Europe           and Other     Consolidated
30, 2013
Revenue from
unaffiliated    $       30,249     $     11,078     $  —          $   41,327
customers
Intersegment    331               222             (553      )   —
revenue
Total net       30,580            11,300          (553      )   41,327
revenues
Operating       $    5,899     $   1,895     $  —         $   7,794
income
                                                                  
Six months      North                               Elimination
ended June      America            Europe           and Other     Consolidated
30, 2014                                            (a)
Revenue from
unaffiliated    $       51,528     $     25,550     $  —          $   77,078
customers
Intersegment    716               141             (857      )   —
revenue
Total net       52,244            25,691          (857      )   77,078
revenues
Operating       $    8,375     $   5,256     $  3,500     $   17,131
income
Six months      North                               Elimination
ended June      America            Europe           and Other     Consolidated
30, 2013
Revenue from
unaffiliated    $       60,160     $     23,344     $  —          $   83,504
customers
Intersegment    575               330             (905      )   —
revenue
Total net       60,735            23,674          (905      )   83,504
revenues
Operating       $    11,382    $   4,447     $  —         $   15,829
income
                                                                      

      Includes a $3.5 million release of reserve for the three and six months
(a)  ended June 30, 2014 related to anticipated settlement agreements in
      connection with a dispute over unclaimed property audits.
      


Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Information
(Unaudited)
(In thousands, except per share amounts)
                                                                
                                       
                           Three months ended         Six months ended
                           June 30,                   June 30,
                           2014          2013         2014          2013
GAAP operating expense     $ 22,375      $ 29,108     $ 50,796      $ 59,264
Unexchanged promotional    (3,500   )    —           (3,500   )    —        
shares (a)
Non-GAAP operating         $ 25,875      $ 29,108     $ 54,296      $ 59,264
expense
                                                                    
GAAP operating income      $ 10,134      $ 7,794      $ 17,131      $ 15,829
Unexchanged promotional    (3,500   )    —           (3,500   )    —        
shares (a)
Non-GAAP operating         $ 6,634       $ 7,794      $ 13,631      $ 15,829
income
                                                                    
GAAP operating margin      27.5     %    18.9     %   22.2     %    19.0     %
Unexchanged promotional    (9.5     )%   —        %   (4.5     )%   —        %
shares (a)
Non-GAAP operating         18.0     %    18.9     %   17.7     %    19.0     %
margin
                                                                    
GAAP effective tax rate    22.2     %    34.2     %   27.4     %    32.4     %
Unexchanged promotional    11.6     %    —        %   7.0      %    —        %
shares (a)
Non-GAAP effective tax     33.8     %    34.2     %   34.4     %    32.4     %
rate
                                                                    
GAAP net income            $ 7,924       $ 5,200      $ 12,561      $ 10,795
Unexchanged promotional    (3,500   )    —           (3,500   )    —        
shares (a)
Non-GAAP net income        $ 4,424       $ 5,200      $ 9,061       $ 10,795
                                                                    
Earnings per share         $ 0.54        $ 0.34       $ 0.84        $ 0.70
Unexchanged promotional    (0.24    )    —           (0.24    )    —        
shares (a)
Non-GAAP earnings per      $ 0.30        $ 0.34       $ 0.60        $ 0.70
share
                                                                      

      Includes a $3.5 million release of reserve for the three and six months
(a)  ended June 30, 2014 related to anticipated settlement agreements in
      connection with a dispute over unclaimed property audits.
      

Contact:

Media:
Travelzoo Inc.
Glen Ceremony, +1 212-484-4998
Chief Financial Officer
pr@travelzoo.com
 
Press spacebar to pause and continue. Press esc to stop.