April 19, 2012 at 08:00 AM EDT
Travelzoo Reports First Quarter 2012 Results

Travelzoo Inc. (NASDAQ: TZOO):

First Quarter 2012 Financial Highlights:

  • Revenue of $39.3 million, up 6% year-over-year
  • Non-GAAP net income of $6.7 million, up 12% year-over-year
  • Non-GAAP earnings per share of $0.42, compared to $0.37 in the prior-year period
  • GAAP net income of $3.7 million; GAAP earnings per share of $0.23
  • Cash flow from operations of $9.8 million

Travelzoo Inc., a global Internet media company, today announced financial results for the first quarter ended March 31, 2012, with revenue of $39.3 million, an increase of 6% year-over-year. Non-GAAP operating income was $9.6 million. Non-GAAP net income was $6.7 million, with non-GAAP earnings per share (non-GAAP EPS) of $0.42, up from non-GAAP EPS of $0.37 in the prior-year period. Non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share exclude a $3.0 million charge related to our unexchanged merger shares.

“We believe that our strategic focus on profitable growth and quality-leadership is the right approach in the long run,” said Chris Loughlin, chief executive officer of Travelzoo. “Despite a competitive environment fueled by venture capital and unsustainable, loss making business practices, we have built a healthy, vibrant franchise with a strong following of 25 million subscribers and a clear vision for future growth. We see opportunity on the horizon to take advantage of the shake out.”

North America

North America business segment revenue grew 4% year-over-year to $28.6 million. Non-GAAP operating income for the first quarter was $7.1 million, or 25% of revenue, down from $9.3 million, or 33% of revenue, in the prior-year period.

Europe

Europe business segment revenue grew 14% year-over-year to $10.8 million. In local currency terms, revenue for the first quarter grew 16% year-over-year. Operating income for the first quarter was $2.4 million, compared to an operating profit of $741,000 in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of newsletter subscribers in North America and Europe of 21.8 million as of March 31, 2012, up 9% from March 31, 2011. In North America, total unduplicated number of subscribers was 15.8 million as of March 31, 2012, up 7% from March 31, 2011. In Europe, total unduplicated number of subscribers was 6.0 million as of March 31, 2012, up 17% from March 31, 2011.

Income Taxes

Income tax expense was $2.9 million, compared to $4.0 million in the prior-year period. The Non-GAAP effective income tax rate was 30%, down from 40% in the prior-year period.

Asset Management

During the first quarter 2012, Travelzoo generated $9.8 million of cash from operating activities. Accounts receivable decreased by $1.8 million over the prior-year period to $14.7 million. Accounts payable increased by $8.8 million over the prior-year period to $22.4 million. Capital expenditures were $678,000, down from $699,000 in the prior-year period. Travelzoo exited the first quarter with $48.6 million in cash and cash equivalents.

Non-GAAP Measures

To give an enhanced view of the company’s operating performance, management has calculated non-GAAP operating income, 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 non-GAAP operating income, non-GAAP net income, and non-GAAP earnings share are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Non-GAAP numbers 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 the company’s intention to report non-GAAP measures in future periods. Refer to the “Reconciliation of GAAP to Non-GAAP Measures” section of this 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 first 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 25 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
March 31,
20112012
Revenues $ 36,960 $ 39,333
Cost of revenues 2,442 4,054

Gross profit

34,518 35,279
Operating expenses:
Sales and marketing 16,131 16,265
General and administrative 8,394 9,444
Unexchanged merger shares 20,000 3,000
Total operating expenses 44,525 28,709
Operating income (10,007 ) 6,570
Other income and expense:
Interest income and other income 32 64
Loss on foreign currency 31 35
Income before income taxes (9,944 ) 6,669
Income taxes 4,011 2,922
Net income ($13,955 ) $ 3,747
Net income per share:
Basic $ (0.85 ) $ 0.23
Diluted $ (0.85 ) $ 0.23
Weighted Average Shares:
Basic 16,451 15,962
Diluted 16,451 16,019
Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
December 31,March 31,
20112012
Assets
Current assets:
Cash and cash equivalents $ 38,744 $ 48,559
Accounts receivable, net 13,340 14,655
Income taxes receivable 3,625 2,780
Deposits 278 402
Prepaid expenses and other current assets 2,123 2,444
Deferred tax assets 1,754 1,755

Total current assets

59,864 70,595
Deposits, less current portion 776 807
Deferred tax assets, less current portion 344 344
Restricted cash 3,103 3,097
Property and equipment, net 3,557 3,674
Intangible assets, net 704 616
Total assets $ 68,348 $ 79,133
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 21,731 $ 22,420
Accrued expenses 6,311 9,010
Accrued expenses for unexchanged shares - 3,000
Deferred revenue 2,168 2,316
Deferred rent 114 99
Income tax payable 279 -
Total current liabilities 30,603 36,845
Long-term tax liabilities 2,225 2,276
Deferred rent, less current portion 761 712
Total liabilities 33,589 39,833
Common stock 164 164
Treasury stock (15,123 ) -
Additional paid-in capital 7,656 7,943
Accumulated other comprehensive loss (1,422 ) (915 )
Retained earnings 43,484 32,108
Total stockholders' equity 34,759 39,300
Total liabilities and stockholders' equity $ 68,348 $ 79,133
Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 31,
20112012
Cash flows from operating activities:
Net income $ (13,955 ) $ 3,748
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 643 627
Deferred income taxes 86 -
Stock-based compensation 187 287
Provision for losses on accounts receivable 18 108
Tax benefit from exercise of stock options (268 ) -
Net foreign currency effects (31 ) (35 )
Changes in operating assets and liabilities:
Accounts receivable (2,918 ) (1,271 )
Deposits (561 ) (132 )
Income tax receivable 264 845
Prepaid expenses and other current assets 193 (295 )
Accounts payable 3,436 460
Accrued expenses 3,433 2,619
Accrued expense for unexchanged merger shares 20,000 3,000
Deferred revenue 19 134
Deferred rent 13 (75 )
Income tax payable 89 (284 )
Other non-current liabilities 14 51
Net cash provided by operating activities 10,662 9,787
Cash flows from investing activities:
Purchases of property and equipment (699 ) (678 )
Purchases of restricted cash - -
Net cash used in investing activities (699 ) (678 )
Cash flows from financing activities:
Proceeds from exercise of stock options 40 -
Repurchase of common stock - -
Tax benefit of stock option exercises 268 -
Proceeds from sale of Asia Pacific business segment - -
Net cash provided by (used in) financing activities 308 -
Effect of exchange rate on cash and cash equivalents 243 706
Net increase (decrease) in cash and cash equivalents 10,514 9,815
Cash and cash equivalents at beginning of period 41,184 38,744
Cash and cash equivalents at end of period $ 51,698 $ 48,559
Supplemental disclosure of cash flow information:
Cash paid or (refunds received) for income taxes, net (3,558 ) 2,309
Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
North

Elimination and

Three months ended March 31, 2012America

Europe

Other (a)

Consolidated

Revenue from unaffiliated customers $ 28,556 $ 10,777 $ - $ 39,333
Intersegment revenue 79 10 (89 ) -
Total net revenues 28,635 10,787 (89 ) 39,333
Operating income $ 7,142 $ 2,428 $ (3,000 ) $ 6,570
North

Elimination and

Three months ended March 31, 2011America

Europe

Other (a)

Consolidated

Revenue from unaffiliated customers $ 27,517 $ 9,443 $ - $ 36,960
Intersegment revenue 101 5 (106 ) -
Total net revenues 27,618 9,448 (106 ) 36,960
Operating income $ 9,252 $ 741 $ (20,000 ) $ (10,007 )
(a) Includes a charge related to unexchanged merger shares of $20.0 million and $3.0 million for the three months ended March 31, 2011 and 2012, respectively.
Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31,
20112012
GAAP operating expense $ 44,525 $ 28,709

Unexchanged merger shares (a)

20,000 3,000
Non-GAAP operating expense $ 24,525 $ 25,709
GAAP North America operating income (loss) $ (10,748 ) $ 4,142
Unexchanged merger shares (a) 20,000 3,000
Non-GAAP North America operating income $ 9,252 $ 7,142
GAAP operating income $ (10,007 ) $ 6,570
Unexchanged merger shares (a) 20,000 3,000
Non-GAAP operating income $ 9,993 $ 9,570
GAAP operating margin -27.1 % 16.7 %
Unexchanged merger shares (a) 54.1 % 7.6 %
Non-GAAP operating margin 27.0 % 24.3 %
GAAP effective tax rate -40.3 % 43.8 %
Unexchanged merger shares (a) 80.2 % -13.6 %
Non-GAAP effective tax rate 39.9 % 30.2 %
GAAP net income (loss) $ (13,955 ) $ 3,747
Unexchanged merger shares (a) 20,000 3,000
Non-GAAP net income $ 6,045 $ 6,747
Earnings (loss) per share $ (0.85 ) $ 0.23
Unexchanged merger shares (a) (b) 1.22 0.19
Non-GAAP earnings per share (b) $ 0.37 $ 0.42

(a) Includes a charge related to unexchanged merger shares of $20.0 million and $3.0 million for the three months ended March 31, 2011 and 2012, respectively.

(b) Shares used to calculate March 31, 2011 non-GAAP earnings per share were 16,551, 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.

Contacts:

Travelzoo
Christie McConnell, +1 (212) 484-4912
cmcconnell@travelzoo.com
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