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Travelzoo (TZOO) Reports First Quarter 2011 Results

Travelzoo Inc., a global Internet media company, today announced financial results for the first quarter ended March 31, 2011, with revenue of $37.0 million, an increase of 30% year-over-year. Adjusted operating profit was $10.0 million. Adjusted net income was $6.0 million, with adjusted diluted net income per share (EPS) of $0.37, up from $0.15 in the prior-year period. Adjusted operating profit, adjusted net income and adjusted diluted earnings per share for the first quarter ended March 31, 2011 exclude a one-time expense item of $20.0 million related to the settlement of the State of Delaware unclaimed property review.

“We kicked off 2011 with record revenues and record adjusted operating income. Subscribers grew by over 1 million, the second best performance in our company’s history,” said Chris Loughlin, CEO of Travelzoo. “We doubled adjusted operating income year-over-year as we continued to ramp up Local Deals, which are now live in 48 markets in 6 countries. North America revenues grew at the fastest pace in over 4 years. Europe saw the highest quarterly subscriber growth ever and returned its first significant quarterly profit. We also reached a settlement agreement for a previously disclosed State of Delaware escheatment claim, incurring a one-time cash expense.”

North America

North America business segment revenue grew 23% year-over-year to $27.6 million. Adjusted operating profit was $9.3 million, or 34% of revenue, up from $6.1 million, or 27% of revenue, in the prior-year period.

Europe

Europe business segment revenue grew 53% year-over-year to $9.4 million. In local currency terms, revenue grew 49% year-over-year. Adjusted operating profit was $741,000, compared to an operating loss of $951,000 in the prior-year period.

Subscribers

Travelzoo had a total unduplicated number of newsletter subscribers in North America and Europe of 19.9 million as of March 31, 2011, up 12% from March 31, 2010, and up 6% from December 31, 2010. In North America, total unduplicated number of subscribers was 14.8 million as of March 31, 2011, up 7% from March 31, 2010 and up 4% from December 31, 2010. In Europe, total unduplicated number of subscribers was 5.1 million as of March 31, 2011, up 29% from March 31, 2010 and up 11% from December 31, 2010.

Asset Management

During the first quarter, Travelzoo generated $10.7 million of cash from operating activities. Accounts receivable increased by $3.1 million quarter-over-quarter and increased by $3.0 million over the prior-year period to $16.4 million. Accounts payable increased by $3.7 million quarter-over-quarter and increased by $6.8 million over the prior-year period to $13.6 million. Capital expenditures were $699,000, up from $138,000 in the prior quarter and up from $396,000 in the prior-year period. Travelzoo exited the first quarter with $51.7 million in cash and cash equivalents.

State of Delaware Unclaimed Property Settlement

On April 21, 2011, Travelzoo entered into an agreement with the State of Delaware resolving all claims relating to a previously-announced unclaimed property review. The primary issue raised in the preliminary findings from the review, received by Travelzoo on April 12, 2011, concerned the shares of Travelzoo which have not been claimed by former shareholders of Travelzoo.com Corporation following a 2002 merger, as previously disclosed in the company’s report on Form 10-K. In the preliminary findings under the unclaimed property review, up to 3.0 million shares were identified as “demandable” under Delaware escheat laws. While Travelzoo continues to take the position that such shares are issuable only to persons who establish their eligibility as shareholders, the company determined that it was in its best interest to promptly resolve all claims relating to the unclaimed property review. Travelzoo will make a one-time $20.0 million cash payment to the State of Delaware and is receiving a complete release of those claims. Travelzoo will provide the amount from cash on hand.

Non-GAAP Measures

To give an enhanced view of the company’s operating performance, management has calculated, for this quarter, adjusted operating income, adjusted net income and adjusted diluted earnings per share by excluding the one-time expense related to the State of Delaware unclaimed property settlement. 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 adjusted operating income, adjusted net income, and adjusted diluted net income per diluted 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 one-time expense related to the State of Delaware settlement, 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 EPS to non-GAAP EPS” section of this release for a discussion 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 22 million subscribers in North America, Europe, and Asia Pacific and 23 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,
2011 2010
Revenues $ 36,960 $ 28,518
Cost of revenues 2,419 1,653
Gross profit
34,541 26,865
Operating expenses:
Sales and marketing 16,154 14,993
General and administrative 8,394 6,712
Settlement with State of Delaware 20,000
Total operating expenses 44,548 21,705
Income (loss) from operations (10,007 ) 5,160
Other income and expense:
Interest income and other income 32 42
Gain (loss) on foreign currency 31 (209 )
Income (loss) before income taxes (9,944 ) 4,993
Income taxes 4,011 2,519
Net income (loss) $ (13,955 ) $ 2,474
Basic net income (loss) per share $ (0.85 ) $ 0.15
Diluted net income (loss) per share $ (0.85 ) $ 0.15
Shares used in computing basic net income (loss)
per share
16,451
16,444
Shares used in computing diluted net income (loss)
per share
16,451
16,452
Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
March 31,
2011
December 31,
2010
ASSETS
Cash and cash equivalents $ 51,698 $ 41,184
Accounts receivable, net 16,409 13,290
Income taxes receivable 264
Deposits 132 129
Prepaid expenses and other current assets 1,312 1,489
Deferred tax assets 1,411 1,411
Total current assets 70,962 57,767
Deposits, less current portion 848 279
Deferred tax assets, less current portion 349 349
Restricted cash 3,125 3,124
Property and equipment, net 3,735 3,425
Intangible assets, net 969 1,058
Total assets $ 79,988 $ 66,002
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable 13,602 9,931
Accrued settlement with State of Delaware 20,000
Accrued expenses 9,653 6,080
Deferred revenue 1,362 1,325
Deferred rent 164 218
Income tax payable 479 650
Total current liabilities 45,260 18,204
Deferred tax liabilities 86
Long-term tax liabilities 1,463 1,449
Deferred rent, less current portion 527 460
Common stock 165 164
Additional paid-in capital 7,093 6,598
Accumulated other comprehensive loss (816 ) (1,038 )
Retained earnings 26,210 40,165
Total stockholders’ equity 32,652 45,889
Total liabilities and
stockholders’ equity
$ 79,988 $ 66,002
Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 31,
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (13,955 ) $ 2,474
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 643 562
Deferred income taxes 86
Stock-based compensation 187 187
Provision for losses on accounts receivable 18 39
Tax benefit of stock option exercises (268 )
Net foreign currency effects (31 ) 209
Changes in operating assets and liabilities:
Accounts receivable (2,918 ) (2,321 )
Deposits (561 ) (8 )
Income tax receivable 264 6,061
Prepaid expenses and other current assets 193 130
Accounts payable 3,436 38
Accrued settlement with State of Delaware 20,000
Accrued expenses 3,433 1,256
Deferred revenue 19 412
Deferred rent 13 34
Income tax payable 89 683
Other non-current liabilities 14 11
Net cash provided by operating activities 10,662 9,767
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (699 ) (396 )
Net cash used in investing activities (699 ) (396 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 40
Tax benefit of stock option exercises 268
Proceeds from sale of Asia Pacific business segment 1,073
Net cash provided by financing activities 308 1,073
Effect of exchange rate on cash and cash equivalents 243 (95 )
Net increase in cash and cash equivalents 10,514 10,349
Cash and cash equivalents at beginning of period 41,184 19,776
Cash and cash equivalents at end of period 51,698 30,125
Supplemental disclosure of cash flow information:
Cash paid for income taxes net of refunds received $ (3,558 ) $ (4,225 )
Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
Three months ended
March 31, 2011
North
America
Europe
Other(a)
Elimination
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 (loss) $ 9,252 $ 741 $ (20,000 ) $ $ (10,007 )
Three months ended
March 31, 2010
North
America
Europe
Other
Elimination
Consolidated
Revenue from
unaffiliated customers
$
22,367
$
6,151
$
$
$
28,518
Intersegment revenue 29 9 (38 )
Total net revenues 22,396 6,160 (38 ) 28,518
Operating income (loss) $ 6,110 $ (951 ) $ $ 1 $ 5,160
(a) Amount represents settlement of State of Delaware unclaimed property review
Travelzoo Inc.
Reconciliation of GAAP EPS to non-GAAP EPS
(Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31,
2011 2010
Operating income (loss) as reported under U.S. GAAP $ (10,007 ) $
5,160
State of Delaware settlement(a) 20,000
Adjusted operating income (a non-GAAP measure) $ 9,993 $ 5,160
Net income (loss) as reported under U.S. GAAP $ (13,955 ) $ 2,474
State of Delaware settlement(a) 20,000
Adjusted net income (a non-GAAP measure) $ 6,045 $ 2,474
Diluted earnings (loss) per share as reported under
U.S. GAAP
$
(0.85
)
$
0.15
State of Delaware settlement(b) 1.22
Adjusted diluted earnings per share
(a non-GAAP measure)
$
0.37
$
0.15
(a) Results for the three months ended March 31, 2011 includes $20.0 million of expense related to the settlement of the State of Delaware unclaimed property review.
(b) Net charges on a per share basis includes an adjustment to diluted earnings per share utilizing diluted shares of 16,551 for the three months ended March 31, 2011. Given that the Company recorded a net loss under U.S. GAAP, shares utilized to calculated diluted earnings per share are equivalent to basic shares. Shares utilized to calculate adjusted diluted earnings per share reflect the number of diluted shares the Company would have reported if reporting net income under U.S. GAAP.
Thursday, April 21st, 2011 Uncategorized
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