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Travelzoo Reports Fourth Quarter 2012 Results

2013-01-24

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Travelzoo Revenue of $37.0 million, up 5% year-over-year - Net income of $3.8 million, down 42% year-over-year

Travelzoo Inc. (NASDAQ: TZOO):

“During the fourth quarter of 2012 we continued to execute our strategy of increasing Travelzoo’s reach, expanding our sales force and developing our products, particularly in the mobile and hotel categories”

Revenue of $37.0 million, up 5% year-over-year
Net income of $3.8 million, down 42% year-over-year
Earnings per share of $0.24, compared to $0.40 in the prior-year period
Cash flow from operations of $13.0 million

Travelzoo Inc., a global Internet media company, today announced financial results for the fourth quarter ended December 31, 2012, with revenue of $37.0 million, an increase of 5% year-over-year. Operating income was $4.4 million, down 47% year-over-year. Net income was $3.8 million, with earnings per share of $0.24, down from $0.40 in the prior-year period. For the full year, revenue was $151.2 million, an increase of 2% year-over-year. GAAP operating income was $25.5 million, up 70% year-over-year. Non-GAAP operating income was $28.5 million, down 19% year-over-year. GAAP net income was $18.2 million, with earnings per share of $1.14, up from $0.20 in the prior-year period. Non-GAAP net income was $21.2 million, with earnings per share of $1.33, down from $1.42 in the prior-year period.

"During the fourth quarter of 2012 we continued to execute our strategy of increasing Travelzoo’s reach, expanding our sales force and developing our products, particularly in the mobile and hotel categories," said Chris Loughlin, chief executive officer. "We are pleased with our progress: The Travelzoo® brand now reaches 26 million subscribers, Getaway sales accelerated, and in Europe our Travel business grew 23% year-over-year. We continue to see strong adoption of the Travelzoo brand on mobile; 33% of users now access our brand through mobile devices.”

North America

North America business segment revenue increased 3% year-over-year to $26.5 million. Operating income for the fourth quarter was $3.4 million, or 13% of revenue, down from an operating income of $6.5 million, or 25% of revenue, in the prior-year period. The decrease in operating income was a result of increased expenses related to sales force expansion and subscriber marketing.

Europe

Europe business segment revenue increased 10% year-over-year to $10.7 million. In local currency terms, revenue for the fourth quarter increased 8% year-over-year. Operating income was $969,000, or 9% of revenue, down from an operating income of $1.7 million, or 17% of revenue in the prior-year period. The decrease in operating income was a result of increased expenses related to sales force expansion and subscriber marketing.

Subscribers

Travelzoo had a total unduplicated number of subscribers in North America and Europe of 22.5 million as of December 31, 2012, up 5% from December 31, 2011. In North America, total unduplicated number of subscribers was 16.1 million as of December 31, 2012, up 3% from December 31, 2011. In Europe, total unduplicated number of subscribers was 6.4 million as of December 31, 2012, up 10% from December 31, 2011.

Income Taxes

Income tax expense was $692,000, compared to $1.9 million in the prior-year period. The effective income tax rate was 16%, compared to 23% in the prior-year period.

Asset Management

During the fourth quarter 2012, Travelzoo generated $13.0 million of cash from operating activities. Accounts receivable increased by $286,000 over the prior-year period to $13.6 million. Accounts payable increased by $7.0 million over the prior-year period to $28.7 million. Capital expenditures were $698,000, up from $558,000 in the prior-year period. Travelzoo exited the fourth quarter with $61.2 million in cash and cash equivalents.

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.


Travelzoo Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)


	Three months ended				Twelve months ended
	December 31,				December 31,
	2012		2011		2012		2011

Revenues	$	37,028	$	35,156	$	151,168	$	148,342
Cost of revenues		4,073		3,680		15,745		13,283
Gross profit		32,955		31,476		135,423		135,059

Operating expenses:
Sales and marketing		18,489		13,921		68,242		65,490
General and administrative		10,109		9,380		38,692		34,547
Unexchanged promotional merger shares		-		-		3,000		20,000
Total operating expenses		28,598		23,301		109,934		120,037

Income from operations		4,357		8,175		25,489		15,022

Other income		92		197		309		302
Income before income taxes		4,449		8,372		25,798		15,324

Income taxes		692		1,944		7,600		12,005

Net income	$	3,757	$	6,428	$	18,198	$	3,319

Net income per share:
Basic	$	0.24	$	0.40	$	1.15	$	0.20
Diluted	$	0.24	$	0.40	$	1.14	$	0.20

Weighted average shares:
Basic		15,659		15,962		15,866		16,315
Diluted		15,659		16,026		15,901		16,414


Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)


		December 31,		December 31,
		2012		2011

	Assets
	Current assets:
	Cash and cash equivalents	$	61,169	$	38,744
	Accounts receivable, net		13,626		13,340
	Income taxes receivable		6,682		3,625
	Deposits		389		278
	Prepaid expenses and other current assets		2,260		2,123
	Deferred tax assets		2,194		1,754
	Total current assets		86,320		59,864
	Deposits, less current portion		1,107		776
	Deferred tax assets, less current portion		1,710		344
	Restricted cash		3,396		3,103
	Property and equipment, net		4,314		3,557
	Intangible assets, net		986		704
	Total assets	$	97,833	$	68,348

	Liabilities and Stockholders' Equity
	Current liabilities:
	Accounts payable	$	28,695	$	21,731
	Accrued expenses		11,993		6,311
	Deferred revenue		2,698		2,168
	Deferred rent		280		114
	Income tax payable		-		279
	Total current liabilities		43,666		30,603
	Long-term tax liabilities		10,030		2,225
	Deferred rent, less current portion		798		761
	Total liabilities		54,494		33,589
	Common stock		163		164
	Treasury stock		(7,898)		(15,123)
	Additional paid-in capital		8,863		7,656
	Accumulated other comprehensive loss		(737)		(1,422)
	Retained earnings		42,948		43,484
	Total stockholders' equity		43,339		34,759
	Total liabilities and stockholders' equity	$	97,833	$	68,348


Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

			Three months ended				Twelve months ended
			December 31,				December 31,
			2012		2011		2012		2011
	Cash flows from operating activities:
	Net income		$	3,757	$	6,428	$	18,198	$	3,319
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		683		671		2,539		2,725
		Deferred income taxes		(2,174)		(546)		(2,178)		(337)
		Stock-based compensation		307		187		1,207		750
		Provision for losses on accounts receivable		46		76		162		52
		Tax benefit from exercise of stock options		-		-		-		(268)
		Net foreign currency effects		1		58		(4)		81
		Changes in operating assets and liabilities:
		Accounts receivable		1,784		576		(285)		(146)
		Deposits		(24)		(99)		(406)		(667)
		Income tax receivable		3,351		(1,061)		5,171		(3,093)
		Prepaid expenses and other current assets		328		188		87		(584)
		Accounts payable		5,211		4,620		6,403		12,074
		Accrued expenses		(630)		(4,737)		5,568		256
		Deferred revenue		190		585		513		853
		Deferred rent		25		30		45		209
		Income tax payable		(1)		(15)		(285)		(369)
		Other non-current liabilities		156		117		(35)		776
	Net cash provided by operating activities			13,010		7,078		36,700		15,631

	Cash flows from investing activities:
		Purchases of restricted cash		(272)		-		(272)		-
		Purchases of intangible asset		(677)		-		(677)		-
		Purchases of property and equipment		(698)		(558)		(2,744)		(2,460)
	Net cash used in investing activities			(1,647)		(558)		(3,693)		(2,460)

	Cash flows from financing activities:
		Cash used in purchase of common stock		(7,898)		-		(11,509)		(15,124)
		Proceeds from exercise of stock options		-		-		-		40
		Tax benefit of stock option exercises		-		-		-		268
	Net cash used in financing activities			(7,898)		-		(11,509)		(14,816)

	Effect of exchange rate on cash and cash equivalents			70		(209)		927		(795)

	Net increase (decrease) in cash and cash equivalents			3,535		6,311		22,425		(2,440)
	Cash and cash equivalents at beginning of period			57,634		32,433		38,744		41,184
	Cash and cash equivalents at end of period		$	61,169	$	38,744	$	61,169	$	38,744

	Supplemental disclosure of cash flow information:
	Cash paid (received) for income taxes, net			(631)		3,453		5,081		15,025


Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)

	Three months ended December 31, 2012	North America		Europe		Elimination		Consolidated

	Revenue from unaffiliated customers	$	26,373	$	10,655	$	-	$	37,028
	Intersegment revenue		157		102		(259)		-
	Total net revenues		26,530		10,757		(259)		37,028
	Operating income	$	3,387	$	969	$	-	$	4,356


	Three months ended December 31, 2011	North America		Europe		Elimination		Consolidated

	Revenue from unaffiliated customers	$	25,500	$	9,656	$	-	$	35,156
	Intersegment revenue		124		42		(166)		-
	Total net revenues		25,624		9,698		(166)		35,156
	Operating income	$	6,504	$	1,671	$	-	$	8,175


	Twelve months ended December 31, 2012	North America		Europe		Elimination and Other (a)		Consolidated

	Revenue from unaffiliated customers	$	108,788	$	42,380	$	-	$	151,168
	Intersegment revenue		728		143		(871)		-
	Total net revenues		109,516		42,523		(871)		151,168
	Operating income	$	21,481	$	7,008	$	(3,000)	$	25,489


	Twelve months ended December 31, 2011	North America		Europe		Elimination and Other (a)		Consolidated

	Revenue from unaffiliated customers	$	108,549	$	39,793	$	-	$	148,342
	Intersegment revenue		466		134		(600)		-
	Total net revenues		109,015		39,927		(600)		148,342
	Operating income	$	30,110	$	4,912	$	(20,000)	$	15,022

	(a) Includes a charge related to unexchanged promotional merger shares for the twelve months ended December 31, 2012 and 2011.


Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts)


	Twelve months ended
	December 31,
	2012		2011

GAAP operating income	$	25,489	$	15,022
Unexchanged promotional merger shares (a)		3,000		20,000
Non-GAAP operating income	$	28,489	$	35,022

GAAP net income	$	18,198	$	3,319
Unexchanged promotional merger shares (a)		3,000		20,000
Non-GAAP net income	$	21,198	$	23,319

Diluted net Income per share	$	1.14	$	0.20
Unexchanged promotional merger shares (a)		0.19		1.22
Non-GAAP diluted net income per share	$	1.33	$	1.42


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