jefferies 2013 global technology, media and telecom conference
TRANSCRIPT
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Jefferies 2013 Global Technology, Media and Telecom Conference
May 9, 2013
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Important Notice
Please read this management presentation together withthe Company’s press release issued earlier announcing theCompany’s first quarter 2013 financial results and inconjunction with the Company’s recent Annual Report andQuarterly Results as filed with the Securities and ExchangeCommission (SEC).
1
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Certain statements contained in this presentation that are not historical facts may beforward looking statements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, asamended. These forward looking statements may include, but are not limited to,statements about our plans, objectives, expectations, prospects and intentions, markets inwhich we participate and other statements contained in this presentation that are nothistorical facts. When used in this presentation, the words "expect," "predict," "project,""anticipate," "believe," "estimate," "intend," "plan," "seek" and similar expressions aregenerally intended to identify forward looking statements. Because these forward lookingstatements involve risks and uncertainties, there are important factors that could causeactual results to differ materially from those expressed or implied by these forward lookingstatements, including changes in our plans, objectives, expectations, prospects andintentions and other factors discussed in our filings with the SEC. We cannot guaranteeany future levels of activity, performance or achievements. Travelzoo Inc. undertakes noobligation to update forward-looking statements to reflect events or circumstancesoccurring after the date of this presentation.
2
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Part 1:Travelzoo Business
Part 2:Financial Performance
Part 3:Growth Strategy Overview
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
To inspire millions of people every day to jump off the sofa and explore the world.
… by consuming unused capacity …
Our vision for Travelzoo…
4
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
That vision translated into our mission…
To be the world’s most trusted publisher of quality travel, entertainment and local deals.
5
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Since 1998, we have established an audience of 26 million subscribers and a leadership position within travel and leisure deals publishing.
* Travelzoo Asia Pacific Limited operates as a licensee of Travelzoo Inc. in Australia, China, Hong Kong, Japan and Taiwan Source: Subscriber counts, internal reporting, website metrics, Google Analytics 2012 average
Travelzoo® is a global brand Demographics of Travelzoo audience*(U.S. example)
• 14.5 million subscribers
• Average household income $85,771 p.a.; 38% with incomes over $100,000
• Frequent leisure travelers: 73% took over 3 leisure trips last year
• $98.6 billion in annual leisure trip purchases
• 86% have passports
• 35% of all traffic is mobile
Subscribers
Travelzoo Office
6
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Travelzoo is considered the ‘gold standard’ in deals publishing thanks to our dedi-cation to quality and a philosophy that if we would not buy it, we will not publish it.
The Travelzoo Difference
Travelzoo Deal Experts located across North America, Europe and Asia bring our subscribers the most competitive deals in the marketplace and bring our advertisers high-quality, high-income active travelers.
Research
Local experts around the world thoroughly research the quality and competitive-ness of each offer.
Evaluate
Editorial evaluates the allure of an offer and endorses as outstanding.
Test
The Test Booking Center test-books each offer to ensure a smooth user experience and strives for most desirable results for advertiser.
Producers spend more than 1,000 hours researching, checking & validating deals each week!
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Every week, millions of people around the world are using Travelzoo… like Heather in Dallas…
8
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Part 1:Travelzoo Business
Part 2:Financial Performance
Part 3:Growth Strategy Overview
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Financial Performance – Full Year 2010 - 2012
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Strong financial track record over time with investments for future growth
Revenue by Type$ million
2010 2011 2012 2012 2013
3-year CAGR17.2%
Full year 3 months
Local
Search
Travel
39.3 42.2
148.3 151.2
112.8
Non-GAAP* Operating Income$ million
2010 2011 2012 2012 2013
3-year CAGR27.6%
Full year 3 months
9.6 8.0
35.0
28.523.5
Non-GAAP* EPS$
2010 2011 2012 2012 2013
3-year CAGR50.5%
Full year 3 months
$0.42 $0.36
$1.42$1.33
$0.80
SubscribersMillion
2010 2011 2012 2012 2013
Full year 3 months
3-year CAGR10.1%
EU
NA
21.8 22.921.5 22.518.9
Revenue by Segment$ million
2010 2011 2012 2012 2013
3-year CAGR EU
37.6%
Full year 3 months
EU
NA
39.3 42.2
148.3 151.2
112.8
* Non-GAAP income and Non-GAAP EPS exclude charges related to unexchanged merger shares of $20 million (EPS impact of $1.22) and $3 million (EPS impact of $0.19) for the three months ended March 31, 2011 and 2012, respectively.
3-year CAGR NA
11.9%
11
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Financial Performance – First Quarter 2013
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Quarterly revenues grew to the highest level ever, but continued investments to spur long-term growth impacted earnings versus previous years.
19.921.8
22.9
Q1 2011 Q1 2012 Q1 2013
37.039.3
42.2
Q1 2011 Q1 2012 Q1 2013
$0.37
$0.42
$0.36
Q1 2011 Q1 2012 Q1 2013
Q1 2013 Financial Performance
Revenue$ millions
Non-GAAP EPS*$ per share
SubscribersMillions
* Non-GAAP EPS excludes charge in prior-year period related to unexchanged promotional merger shares. See appendix for GAAP to Non-GAAP reconciliation.
13
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Revenue growth accelerated in both North America and Europe.
Quarterly Revenue by Segment
12.3
10.8
10.7
9.7
10.3
10.7
10.6
10.0
10.8
9.4
29.9
28.6
26.4
25.6
25.1
28.1
28.7
27.7
28.6
27.6Q1
Q2
Q3
7.9
6.9
6.6
6.2
6.5
6.7
6.7
6.1
6.9
5.9
North America$ millions
Europe$ millions
2011
2012
2011
2012
2011
2012
2011
2012
Q4
Europe(local currency)₤ millions
2012
2013
Q1
+4%
+4%
-10%
+3%
+5%
+14%
+7%
-4%
+10%
+14%
+16%
+10%
-2%
+8%
+14%
14
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Local
Search
Travel
North America Revenue by Type$ millions
15.6 13.917.5
6.05.4
5.7
7.07.1
6.7
Q1 2012 Q4 2012 Q1 2013
Highlights
• Travel – Q/Q 26% seasonal increase, Y/Y 13% increase driven by certain vacation packagers and Getaways for hotels.
• Search – Q/Q 6% decrease,Y/Y 5% decrease due to less favorable market pricing than prior period.
• Local – Q/Q 5% and Y/Y 4% decrease driven by Y/Y declines in vouchers sold per deal and take rate; Q/Q seasonality.
28.629.9
Y/Y $ Change
Q/Q $Change
-0.3
-0.3
+1.9
-0.4
+0.3
+3.6
26.4
North America revenue year-over-year growth was driven by Travel.
15
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Local
Search
Travel
Europe Revenue by Type$ millions
7.4 7.59.3
1.3 0.8
0.92.1 2.3
2.1
Q1 2012 Q4 2012 Q1 2013
Highlights
• Travel – Q/Q 23% increase. Y/Y 26% growth driven by certain vacation packagers, cruises advertisers and Getaways for hotels; despite tough economy.
• Search – Q/Q 6% increase and Y/Y 33% decrease due to reduced spend on traffic acquisition. We strategically pulled back on spend to improve profitability in this uncertain Europe economy.
• Local – Q/Q 8% decrease due to seasonality and Y/Y flat driven by reduced number of vouchers sold per deal and decline in take rate.
10.8
12.3Y/Y $
ChangeQ/Q $
Change
0.0
-0.4
+1.9
+0.1
+1.8
10.6 -0.2
Europe revenue growth was driven by a 26% increase in Travel revenues.
16
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Europe is now contributing one third of Travelzoo’s operating income. Net income enjoyed a $250,000 favorable tax benefit this quarter.
Year-over-Year Comparisons of Q1 Income
Q1 2013($ millions)
Comparison:Q1 2012($ millions)
Operating income North America
Operating income Europe
Non-GAAP operating income**
IncomeTaxes*
Non-GAAP net income**
Other income (expense)
0.1
(2.5)5.6
2.55.5
8.0
0.1 (2.9) 6.72.47.1 9.5
** Non-GAAP income excludes a charge in prior-year period related to unexchanged promotional merger shares. See appendix for GAAP to Non-GAAP reconciliation.
* Includes a favorable tax benefit of ~$250,000 (EPS benefit of ~$0.02).
17
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Q1 2012 Q4 2012 Q1 2013
Cost of Revenueas percentage of revenue
Subscriber refunds
Customer service
Credit card processing
Other
10.3%11.0%
9.4%
Local
Non-GAAP Operating Margin*as percentage of revenue
Q1 2012 Q4 2012 Q1 2013
24.3%
11.8%
19.1%
Operating margins increased over the previous quarter, but were still impacted by continued investments.
* Non-GAAP operating margin a charge in prior-year period related to unexchanged promotional merger shares. See appendix for GAAP to Non-GAAP reconciliation.
18
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
5.3 6.0
2.5
3.2
Q1 2012 Q1 2013
11.013.7
7.0
7.6
Q1 2012 Q1 2013
Operating Expenses*$ millions and as percentage of revenue
General & Administrative
Sales & Marketing
18.0
21.3
24%
38%
62%25%
46%
71%
7.8
9.2
24%
49%
73%26%
49%
75%
North America business segment Europe business segment
Head-count-related
Incremental subscriber, search & other
1.12.2
The declining operating margin year-over-year stems from our near-term investments into headcount, audience, and products, particularly in North America.
* Segment operating expenses excludes a charge in prior-year period related to unexchanged promotional merger shares. See appendix for GAAP to Non-GAAP reconciliation.
19
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
187
222 220 223 230 230256 260
272109
121137 127 130
144
151 157 153
296
343357 350 360
374
407 417 425
Hiring continues in order to spur and support growth.
Headcount and Average Annualized Revenue per Employee
Headcount
Europe
North America
Average annualized revenue per employee ($ thousands)
$348$499 $438 $433 $402 $437 $420 $356 $397
Q1 2013Q2 2012Q1 2012Q4 2011Q3 2011Q2 2011Q1 2011 Q3 2012 Q4 2012
20
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Solid collections and continued positive cash flows further strengthened our financial position.
35 35 34
Q1 2012 Q4 2012 Q1 2013
48.6
61.265.1
Q1 2012 Q4 2012 Q1 2013
DSO and Cash Balances
DSO (Days Sales Outstanding)# of days
Cash Balance at End of Quarter*$ millions
* Includes cash and cash equivalents
21
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
First Quarter 2013 Performance Summary
• Record revenue in both North America and Europe.
• Investments in sales force, audience growth and hotel booking capability result in year-over-year lower operating margin yet we expect payback over long-term.
• Solid cash position and positive cash flow.
22
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Part 1:Travelzoo Business
Part 2:Financial Performance
Part 3:Growth Strategy Overview
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Annual revenue per subscriber*US$ per subscriber
* Defined as annualized year to date revenue divided by the number of subscribers at beginning of year.** North America and Europe only. Asia Pacific operated under license.
22.9 million Number of subscribers**
$7.51
TravelzooQ1 2013
Strategic Elements:
1. People: Grow sales force to increase the number of businesses from which we publish deals.
2. Audience: Grow subscribers, but also mobile users, Facebook fans, and Twitter followers.
3. Products: Develop booking platform for hotels and other deals; increased focus on mobile products.
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.
24
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
NearNear-termhiring target
Q1 2012 Q1 2013
Strategic Element 1: Continue to expand sales force in Hotels and Local Deals.
7894
43
56
Q1 2012 Q1 2013
171
Sales force is a driver of future revenues, and we continued hiring, net of attrition…
121
Europe
North America
Affecting Y/Y operating expenses and EPS short-term
… and this investment is slowly starting to pay off.
Number of Deals Published
Q1 2012 Q1 2013
Local Deals
Getaways
North America Europe
Revenues for Getaways (hotel voucher sales)Europe
North America
+81%
+96%150
Q1 2012 Q1 2013
+48%
25
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Strategic Element 2: Re-accelerate audience growth & build deeper relationships with our subscribers.
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 $81million
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 $151.2 million
Q1 2013 22.5 million $7.51** $168.7 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…
… our investments in analytics, engagement & product will help improve revenue per subscriber over time.
• Increasing levels of engagement both sequentially and year-over-year
• Social audience (Facebook and Twitter) continues to grow with increasing visits
• Review of website and email photos and organization of website to enhance the visitor experience
* Beginning of year subscribers** Annualized
26
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Strategic Element 2: Grow our mobile and social audience to further engage with our audience.
We are focusing on mobile and social…. … allowing us to further engage with our audience.
Mobile app downloads*
Facebook Fans*
Twitter Followers*
+47%
* Cumulative totals
+546%
+248%
27
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Strategic Element 3: Develop our hotel booking platform to enhance our mobile user experience.
Today’s user experience on mobile is not where we want it to be
• Mobile is now over 35% of our traffic.
• Currently no date or destination search function on mobile products.
• With direct deals, users are referred to 1,000+ different hotel websites to book, many hotel websites fail on mobile.
• With Getaways, users have to buy a voucher and then call the hotel to make their booking.
Hotel booking platform will solve hotel search and mobile booking process
• Users will more easily find deals.
• Bookings can be completed right away, on our website or within our apps.
• Allows hotels to promote deals in a more flexible manner, e.g. promote last-minute weekends deals.
28
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Strategic Element 3: Investing into a hotel booking platform affects earnings near-term, and will continue in 2013.
• Appointed senior hotel booking leader, Steven Rubin (Kimpton, Swissotel)
• Re-deployed acquired code & staff from Perfect Escapes
• Limited test bookings through Perfect Escapes website: $400,000 in gross bookings in Europe and North America*
• Completed business framework/ contracts/presentations etc.
• Completed set-up of customer service operations
Q1 2013Q1 2013
• Begin hotel contracting
• Begin content development
• Continued testing under Perfect Escapes brand
• Develop web and mobile products
Q2 2013Q2 2013
• Roll-out new platform across the board and all devices
• Aggressively ramp up:
– Number of hotels
– Number of deals
– Booking revenues, particularly from mobile usage
Q3/Q4 2013Q3/Q4 2013
Q1 impact on expenses was~$600,000 or ~$0.03 EPS
impact with no significant revenue benefit
Q2 impact on expenses expected to be ~$900,000 or ~$0.04 EPS
impact with no significant revenue benefit
* Revenues for hotel bookings will be recognized after the hotel stay occurs.
29
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
We continue to believe that deal quality drives subscriber loyalty and that our quality-leadership positions us well for long-term success.
Top 20® listThis week's most outstanding travel, entertainment and local deals, researched and tested.
Outstanding Travel DealsWe feature deals at Travel + Leisure's World's Best 500 and Conde Nast Traveler's Gold List.
Outstanding Local DealsZagat highly rated restaurants and luxe spas inside 5-star resorts, entertainment deals.
30
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Management Focus for 2013
� Maintain our quality leadership position by publishing high-quality deals and tightening brand control.
� Reaccelerate top-line long-term revenues by investing in:
• Sales force growth and productivity.
• Audience growth and engagement, across email, social and mobile.
• Products that simplify and improve our business, particularly our online booking capability for hotels and our mobile products.
� Invest for future growth while remaining profitable.
31
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
APPENDIX
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Travelzoo Inc.Revenue by Segment and Type - Quarterly and Annual(in thousands except for percentages)
North America Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 2011 2012
Travel 16,160 14,144 13,150 14,341 15,546 14,591 12,606 13,894 17,491 57,795 56,636Q/Q growth rate 26% -12% -7% 9% 8% -6% -14% 10% 26%Y/Y growth rate 10% 3% 6% 12% -4% 3% -4% -3% 13% 8% -2%
Search 5,950 6,360 7,013 4,657 6,005 5,985 5,737 5,374 5,703 23,980 23,101Q/Q growth rate 14% 7% 10% -34% 29% 0% -4% -6% 6%Y/Y growth rate -4% -3% 1% -10% 1% -6% -18% 15% -5% -4% -4%
Local 5,408 7,084 7,780 6,502 7,005 8,136 6,804 7,105 6,718 26,774 29,050Q/Q growth rate 39% 31% 10% -16% 8% 16% -16% 4% -5%Y/Y growth rate 271% 281% 323% 67% 30% 15% -13% 9% -4% 196% 9%
Total North America Revenues 27,518 27,588 27,943 25,500 28,556 28,712 25,147 26,373 29,911 108,549 108,788Q/Q growth rate 25% 0% 1% -9% 12% 1% -12% 5% 13%Y/Y growth rate 23% 25% 32% 16% 4% 4% -10% 3% 5% 24% 0%
Europe Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 2011 2012
Travel 7,332 7,000 6,952 6,150 7,393 7,543 7,368 7,540 9,292 27,434 29,844Q/Q growth rate 36% -5% -1% -12% 20% 2% -2% 2% 23%Y/Y growth rate 33% 32% 24% 14% 1% 8% 6% 23% 26% 26% 9%
Search 958 1,338 1,652 1,141 1,290 1,012 1,026 821 870 5,089 4,149Q/Q growth rate 32% 40% 23% -31% 13% -22% 1% -20% 6%Y/Y growth rate 84% 180% 143% 57% 35% -24% -38% -28% -33% 112% -18%
Local 1,152 1,639 2,114 2,365 2,094 2,093 1,906 2,295 2,104 7,270 8,388Q/Q growth rate 189% 42% 29% 12% -11% 0% -9% 20% -8%Y/Y growth rate 885% 776% 819% 493% 82% 28% -10% -3% 0% 679% 15%
Total Europe Revenues 9,442 9,977 10,718 9,656 10,777 10,648 10,300 10,655 12,266 39,793 42,381Q/Q growth rate 45% 6% 7% -10% 12% -1% -3% 3% 15%Y/Y growth rate 54% 68% 65% 48% 14% 7% -4% 10% 14% 58% 7%
Total Consolidated Revenues 36,960 37,565 38,661 35,156 39,333 39,360 35,447 37,028 42,177 148,342 151,168Q/Q growth rate 30% 2% 3% -9% 12% 0% -10% 4% 14%Y/Y growth rate 30% 34% 40% 23% 6% 5% -8% 5% 7% 32% 2%
Consolidated Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 2011 2012
Current Forecast 23,492 21,144 20,102 20,491 22,939 22,134 19,974 21,433 26,783 85,229 86,480Q/Q growth rate 29% -10% -5% 2% 12% -4% -10% 7% 25%Y/Y growth rate 16% 11% 11% 12% -2% 5% -1% 5% 17% 13% 1%
Search 6,908 7,698 8,665 5,798 7,295 6,997 6,763 6,195 6,573 29,069 27,250Q/Q growth rate 17% 11% 13% -33% 26% -4% -3% -8% 6%Y/Y growth rate 2% 9% 14% -2% 6% -9% -22% 7% -10% 6% -6%
Local 6,560 8,723 9,894 8,867 9,099 10,230 8,710 9,400 8,822 34,044 37,438Q/Q growth rate 53% 33% 13% -10% 3% 12% -15% 8% -6%Y/Y growth rate 317% 326% 378% 106% 39% 17% -12% 6% -3% 241% 10%
Total Consolidated Revenues 36,960 37,565 38,661 35,156 39,333 39,360 35,447 37,028 42,177 148,342 151,168Q/Q growth rate 30% 2% 3% -9% 12% 0% -10% 4% 14%Y/Y growth rate 30% 34% 40% 23% 6% 5% -8% 5% 7% 32% 2%
(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
33
www.travelzoo.comJefferies 2013 Global Technology, Media and Telecom Conference
Travelzoo Inc. Reconciliation of GAAP to Non-GAAP Measures (Unaudited) (In thousands, except per share and percentage amounts) Three months ended March 31, 2013 2012 GAAP operating income $ 8,036 $ 6,570
Unexchanged promotional merger shares (a) — 3,000 Non-GAAP operating income $ 8,036 $ 9,570 GAAP net income $ 5,595 $ 3,747
Unexchanged promotional merger shares (a) — 3,000 Non-GAAP net income $ 5,595 $ 6,747 Diluted net income per share $ 0.36 $ 0.23
Unexchanged promotional merger shares (a) — 0.19 Non-GAAP diluted net income per share $ 0.36 $ 0.42 GAAP operating margin 19.1% 16.7 % Unexchanged merger shares (a) — 7.6 % Non-GAAP operating margin 19.1% 24.3 % GAAP effective tax rate 30.6% 43.8 % Unexchanged merger shares (a) — -13.6% Non-GAAP effective tax rate 30.6% 30.2 % (a) Includes a charge related to unexchanged promotional merger shares of $3.0 million for the three
months ended March 31, 2012.
34