Hello everyone. Welcome to the Travelzoo Third Quarter 2020 Financial Results Conference Call. All participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. Today's call is being recorded. The company would like to remind you that all statements made during this conference call and presented in the slides, that are not statements of historical facts constitute forward-looking statements, and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Form 10-K and 10-Q and other periodic filings with the SEC. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier this morning. An archived recording of this conference call will be made available on the Travelzoo Investor Relations website at travelzoo.com/ir. Now it's my pleasure to turn the call over to Travelzoo's Global Chief Executive Officer, Holger Bartel; and its Chief Accounting Officer, Lisa Su. Lisa will start with an overview of the third quarter 2020 financial results.

Thank you, operator, and welcome to those of you joining us today. Please open the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations website at travelzoo.com/ir. On the first slide on Page number three, you can see the strong improvement of the business in Q3 compared to Q2. That said, with revenues almost doubling to $13.8 million in Q3 compared to Q2, we have begun the path of recovery. We were able to curb the losses not only by growing revenue, but also by quickly cutting expenses. The trend shows that revenue and EPS increasing from Q2 to Q3. We were also able to reduce our operating loss from Q2 to Q3. Travelzoo has decided to provide information on non-GAAP operating income going forward, as we believe it better explains how management evaluates performance. Page four, shows the non-GAAP operating income, which decreased year-over-year by 69%. However, we were able to turn to Q3 income positive, with a result of $1.2 million. Slide five, gives the detail on the items that are excluded in the calculation of non-GAAP operating income. On Slide six, the cash balance of $51.7 million presented almost doubled versus Q2 and year-over-year it grew by more than 61%. This effect is clearly driven by voucher sales. Slides seven and eight detail our revenue by business segments. When neutralizing FX changes, the North America business segment recorded a decrease in revenue of 41% year-over-year, and the Europe business segment recorded a decrease in revenue of 56%, due to the ongoing effects of the pandemic. While revenues from local still stagnated in Q3, advertising revenue picked up compared to the previous quarter, as advertisers have started coming back to make use of Travelzoo's reach. The non-GAAP operating expenses presented in Slide nine, show a year-over-year reduction of 43%, mostly coming from headcount adjustments, and sales and marketing and process optimization, across most areas of the company. We believe, we are well-positioned to maintain efficiency in the long run. Slide 10 shows that our efforts towards increasing efficiency and regaining profitability have paid off. We currently expect to receive a result close to breakeven or profit in Q4, if we can stay on the current path of recovery. Now please turn to Slide number 11. Holger will provide an update on our members and management focus.

Thank you, Lisa. Well, these days we often emphasize the importance of pivoting and adjusting quickly to a changing environment. Today, I'd like to talk more about our members and emphasize how vital they actually are to Travelzoo's success. With more than 30 million members, 6.5 million mobile app users, and 4 million social media followers, Travelzoo is loved by travel enthusiasts. And the brand's following is considered high quality by the industry. Travelzoo members are active. 71% took three or more trips last year. They are open-minded. 75% say they look forward to receiving ideas and deals from Travelzoo and to be influenced. Travelzoo members are established. Many are in the 50-plus age group. This is the fastest growing segment in leisure travel. And our members have a higher disposable income and spend more on travel, including spending at the destination. Lastly, 67% of Travelzoo members are female. The last month's and Travelzoo success in selling vouchers for the future, Travel have shown our members really love the brand and trust Travelzoo. We believe this is a large and unique asset. Finally, please turn to page 13. We left this page unchanged from last quarter, because management's focus remains the same for Q4. Now back to the operator for our Q&A session.

Our first question comes from Jim Goss from Barrington Research. Please go ahead with your question.

Good morning, and thank you. I have a couple. One thing you always talk about the irresistibly priced deals that are coming into the market that you're able to draw attention to. But it does seem like, as with a number of things, if they don't have to be just great deals, they have to rely on consumer willingness to travel. And I'm just wondering how you match up those contrasting issues right now. Are you seeing a greater willingness of returning to travel and is it for trips with the flexibility of those in the past or there's some distance? How are you characterizing the shape of that recovery right now, Holger?

Hi, Jim. So when we do surveys among our members, about half of them are prepared to travel right now or in the next few months. A lot of that is interest in domestic trips. The other half falls into a category of what I would characterize right now of dreamers. They dream about going somewhere next year. And I believe that's why our voucher model is successful, because members can lock into deals that we are seeing today for travel in the future. As soon as people are ready to travel again, we still anticipate a significant pent-up demand of people wanting to go and wanting to go on trips.

So in terms of the timing of that recovery, I know you talked about fourth quarter being potentially profitable. Is that fairly safe, and that first quarter will be even better, just in terms of that shape of that rebound?

So far over the last six months we've seen a very, very steady recovery. Every month is getting better. Q4 right now also looks better. You saw that we are expecting an increase in revenues for Q4 from Q3. Right now, we are very confident that this travel trend - that this trend of recovery will continue. But we never know what the world will bring to us.

A couple of others. Europe, I was intrigued that the European numbers seem to be worse than the North American numbers, and it seemed from this side of the pond that Europe was doing better, at least until some of the recent renewed lockdowns. Why do you think that was - will it account for that disparity?

Europeans tend to be more cautious. I think they're more hesitant. Americans, the American consumer is generally much more optimistic than a European consumer. And that's, I think, what's reflected in the data. The speed of recovery is the same, I would say. But in Europe, we started a little bit later than in North America.

Okay. And lastly, Jack's Flight Clubs, certainly had a pretty good start to its experience with you. Are you any closer to a plan to try to extend the subscription model to other areas of the business, or even if it's not immediate but in terms on your planning forward?

Right now, our focus is on growing Jack's Flight Clubs revenues and not make any changes to the Travelzoo business.

Okay. Thanks very much.

Sure, Jim. You're welcome.

Thank you. Our next question comes from the line of Michael Kupinski from Noble Capital Markets. Your question, please.

Thank you. And I know it's been a hard quarter to work through and much like the second quarter, but you at least beat my expectation. So congratulations on that. So first of all, my first question is like, I know that in the U.S. Airlines are starting to see some of the largest number of people travelling since the big pandemic began in March. I would assume that most of that is domestic travel, or are you seeing international travel picking up as well? I haven't gotten the distinction between domestic versus international.

Yes. You're absolutely correct. Right now, consumers in general, and our members are much more interested in domestic travel. That's what's generating most of our revenue right now. We expect that international travel will be more a story of 2021. And thank you, Michael, we also are quite happy because we feel better in the end in Q3 than what we actually predicted in our last earnings call. So we are quite happy that we came in, even above the higher end of our expectations.

Great. And I know that Ireland has recently - kind of went backwards in terms of shutting down their economy. And I was just wondering if - what you're starting to hear in terms of other European Union type company - countries, about lockdowns and things like that? Are we kind of - is Ireland kind of like one of those that is - I guess off - not likely that we're going to see other countries follow in that pattern, or what is your sense since you're kind of close to that market?

Look, these are all political decisions. First, they are very fragmented and second, politicians tend to change their mind quite rapidly. So it's very hard to predict what they will do even a week from today. The beauty of our voucher model, and I think that's why also the travel suppliers like it so much, is that it basically allows the member to lock-in the trip. So if I take your example with Ireland, so they can lock-in the trip to Ireland. As soon as they are able and allowed to fly to Ireland again, nothing needs to be done, they just call the hotel and they turn their voucher into a trip. They book the airline ticket which likely is very cheap at the beginning when flights are resuming. So it's truly a win-win, this model that we have developed. It's a win-win for members and for the travel suppliers that we are working with. And we are actually seeing an increasing share of non-members or consumers who haven't been members before buying these vouchers. So it's quite nice to see that this product allows us to expand reach even beyond the member base that we had.

I know that you are indicating that you're expecting earnings to be roughly flat for the fourth quarter. But can you give us a sense of how - what's baked into that number in terms of maybe the revenue trends both U.S. and Europe? In particular, you saw such a sequential improvement from Q2 to Q3 in terms of revenues. Are you kind of expecting a similar type of progression in terms of moderating revenue trends, as we go into Q4?

Sure. We included some information on Slide 10 in the presentation. We expect costs that are relatively stable, not only in Q4, but we will remain in this cost basis roughly in 2021. It will probably go up a bit because we will start spending more on marketing. On the revenue side, we expect increases from Q3 to Q4, as we said earlier. Right now, just to give an example, in the U.S. we have advertising agreements for Q4 booked that are roughly 60% to 70% above all advertising that we delivered in Q3. So that makes us very optimistic. However, it sometimes difficult to predict. Maybe the advertiser changes their mind and they want to postpone their campaign. But right now, we are clearly seeing that the trend of recovery in advertising revenues is continuing. Voucher sales are still strong. But of course, in light of - in spite of all that positivity, we have to be cautious and prudent because no one back in January or February knew what the world will see this year.

I know that you plan to wean yourself off of the voucher sales. And I think you had hoped that maybe that would have happened a little bit more, so in Q3. How do you see that going into Q4? Do you think that you're likely to see predominant, kind of like very strong voucher sales in Q4 as well? Or do you think that you're kind of getting back to normalized business?

Revenues are increasing over these quarters. So the percentage of voucher - the percentage of revenue coming from voucher sales is decreasing as part of - as a percentage of overall revenues. And this is mostly because, as I said, because advertising revenues are growing again.

Got you. And then one other aspect of the quarter was the optimization processes that you put in place. And these likely will kind of flow through as you go into next year as well. I was just wondering if you can kind of give us a little bit of that, kind of how do you see margins kind of improving as you go into next year. And how important are these optimization processes as you kind of look to 2021?

In general, cost of revenues as a percentage of revenues will tend to decrease because as revenues are increasing, some of these costs are still fixed costs. Some of these costs, like customer service or member services, we call them are decreasing, as we are obviously becoming more efficient and productive there. And then, as I said, the operating expenses, we are at the level where right now we see them to remain quite stable into Q4 and not increase dramatically again, in 2021. We have made significant adjustments to our cost basis. You saw last quarter that our staff has been reduced. And we are not planning to get back to expense levels in 2021, compared to where we were before this COVID crisis.

Thank you. Our next question comes from the line of Steve Silver from Argus Research. Your question please.

Good morning everybody, and congratulations on the progress. I think it's really exciting to see the execution in these challenging times. I guess my main question would be given the fact that the revenues are showing a very strong positive trend because of the voucher sales. Is there any commentary you could provide in terms of whether vouchers are being redeemed at this stage? I know the revenues coming in, and they're going as payable on the balance sheet. But is most of the voucher activity bringing the cash in right now, or are some of these vouchers being redeemed, or the voucher redemption is more of a 2021 story?

You can see from the balance sheet that a lot of vouchers are for use in 2021 and 2022. So I cannot say that the majority of the vouchers are redeemed. But those vouchers that have expired, yes, of course they get redeemed when it comes to refunds, as you can expect, we are, of course, making a reserve for future refunds that we estimate. We estimate that based on actual refund data that we are seeing with expired vouchers and then we are actually being extra careful as we wouldn't then increase this rate. But this is then charged against revenue. So the revenue we're actually seeing, as you can expect, as I said, the revenue we're seeing is not the full revenue of the voucher sales. It's a net revenue after the refund reserve that we create every quarter. And obviously, as we sell more vouchers, the reserve for future refunds is also increasing significantly.

Great, that's really helpful. Congratulations again.

Thank you. Our next question comes from the line of Ed Woo from Ascendiant Capital. Your question please.

Yes, thank you and congratulations on the quarter. On the vouchers, are there any expiration dates on them?

Yes, every voucher has an expiration date. The majority of vouchers expire in 2021 and 2022. Once we get close to the expiration date, we speak with the travel supplier and in many cases they will then agree on extending the validity of the vouchers, because when we sold these vouchers early in the year, they were hoping things improve more quickly. Now things are improving maybe a little bit more slowly for them. So they are happy, the more people we bring them into their hotels and local businesses.

When the vouchers do expire, who gets the benefit? Do the hotel suppliers get it or do you guys get the benefit?

For vouchers that get refunded, of course, the member gets the money back. For vouchers that are redeemed, we are retaining our share and the merchant or hotel gets paid out their share. For vouchers that end up not being used that really differs from one country to the next based on local regulations. In some countries, you are entitled to retain the breakage; in other countries you are not. Even the rules vary sometimes from state to state.

Okay, great. Then my other question is, in terms of your outlook for travel, do you see a strong recovery, you think in the early part of 2021? Or do you think it will be in the middle or late half of 2021?

Right now, the trend is the same as three months ago. It's very much focused on domestic travel. Yes, there's some international travel, maybe to destinations where, for example, Americans are more comfortable traveling to like Mexico, but definitely seeing strong redemptions to Mexico, to the Caribbean. We don't see much across the Atlantic because Americans cannot fly to Europe and Europeans cannot fly to the U.S. or to Canada. But what we are clearly hearing from our members is that as soon as they allow to do so, they really want to take these trips. And look, I mean, we are now at revenue levels of almost 60% of where we were before this crisis, so 60% of last year. And let's see, I've looked at some other companies in the leisure space, in the travel space. We are actually very happy that we are probably the company that is recovering the fastest, both in terms of revenue recovery, as well as getting back to profitability. We actually feel that the strategies and products we implemented a few months ago in April and May, and then the aggressive actions we took to reduce our costs are now really paying off. And I think we are - I mean, we'll see what some other companies report, but we are probably in one of the best positions of - compared to other companies that I can see in this space.

Yes, definitely done a very good job of rebounding. My last question is on the local business, do you see it returning as strong a rebound as your travel voucher business?

It's the category that recovers more slowly right now. Actually more slowly than entertainment, because there is simply not a lot of events. Some virtual events are being advertised to our members, but not much. Local is recovering, but it's clearly slower than the hotel business.

Thank you. Okay, I'll now turn the call back to Mr. Holger Bartel. Please go ahead.

Well, thanks so much, ladies and gentlemen. Appreciate your time and support and we look forward to speaking with you again next quarter. Have a nice day. Bye.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect your lines and have a nice day.