Hello, everyone. Welcome to the Travelzoo Third Quarter 2021 Financial Results Conference Call. All participants have been placed in a listen-only mode and the floor will be open for 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 provision 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 floor over to Travelzoo's Global CEO, Holger Bartel; and its Chief Accounting Officer, Lisa Su. Lisa will start with an overview of the third quarter 2021 financial results.

Thank you, operator, and welcome to those of you joining us today. Please open the management presentation to our prepared remarks. The presentation in PDF format is available on our Investor Relations website at travelzoo.com/ir. Let's begin with Slide #3. Here, you can see that our Q3 revenue was $15.7 million, up 14% from $13.8 million year-over-year. Our operating loss in Q3 was $261,000 due to our revenue being negatively impacted by press coverage about the Delta variant in North America. We believe that this will be a short-term effect as the news has become more positive in recent days worldwide, especially around travel restrictions being lifted for Europe and North America. We had a slight decline in members from 31.3 million at the end of June down to 30.7 million at the end of September. On Slide 4, we go into more details about our 2 more significant business segments, North America and Europe. We are showing the revenue and operating income for the last 3 years for Q3. Both of these segments had significant revenue decline in 2020 but have now recovered. In Q3, revenue from Europe grew faster. This had a positive impact on Europe segment operating income. Our North America business segment is at 63% of the 2019 levels, and the operating income is close to breakeven. Our Europe business segment was slower to recover and is at 62% of 2019 revenues but has closed the gap on the operating income, which now with 600,000 is almost equal to 2019. On Slide 5, we provide information on non-GAAP operating profit as we believe it better explains how Travelzoo evaluates performance. This slide shows the non-GAAP operating profit, which is slightly lower at $1.1 million for Q3 2021 compared to $1.2 million for Q3 2020. Slide 6 provides details on the items that are excluded in the calculation of non-GAAP operating profit. Please turn to Slide 7. As of September 30, 2021, consolidated cash, cash equivalents and restricted cash were $66.4 million. The cash balance reached the expected level as more vouchers were used by Travelzoo members and merchant payables decreased. An additional factor was deposits related to the switch to a more efficient payment processor. Slides 8 and 9 detail our revenues by business segment. When neutralizing FX changes, the North America business segment recorded an increase in revenue of 6%. Year-over-year in the Europe business segment recorded an increase in revenue of 37% year-over-year. Compared to the prior year period, both revenue types, travel and local, have picked up as advertisers and partners have started coming back to make use of our reach. On Slide 10, you can see that the quick adjustment of our cost structure right at the beginning of the pandemic in 2020 has resulted in ongoing lower fixed costs and improved the organization's efficiency. As our operating expense consists of mostly fixed costs, we expect profits to increase if revenues continue to increase. In summary, as you can see on Slide 11, Q3 had lower revenues than anticipated due to the Delta variant in North America, while Europe's revenue trended positively. However, due to lower fixed costs, the company only recorded a small operating loss. Looking ahead, we currently expect to achieve profitability in Q4. We continue to see a trend of recovery of our revenue. However, there could be unexpected fluctuations in the short term.

Thank you, Lisa. So let's turn to Slide 12. We have more than 30 million members, 6.8 million mobile app users and 4 million social media followers. So Travelzoo is loved by travel enthusiasts. And even more, our members, they are affluent, they are active, and they are open to new experiences. You see in the U.S., 71% of members say that Travelzoo influences their travel destinations because they trust Travelzoo, and that element of trust is really aimed at us. Slide 14 gives you an overview of what we are focused on. We want to seize the exceptional opportunity for providing our 30 million members with exclusive and irresistible offers in the area of travel, entertainment and local offers and experiences. We want to accelerate the growth of our member base in 2022 and to grow Jack's Flight Club's profitable subscription revenue. And we also want to grow profitability over the next year as demand for travel returns.

Our first question comes from Michael Kupinski with NOBLE Capital.

I was wondering if you can give us a sense of how business trended in North America throughout the quarter. Did you see travel kind of picking up towards the end of the quarter as the Delta variant kind of subsided in some markets or can you give us a sense there? And then in Europe, since it grew faster, what was the difference because there were still a lot of countries that had no flight restrictions and so forth? So I'm just curious why Europe kind of saw a better growth rate than North America?

Yes, hi, Michael. So in fact, in Q3, the situation in North America and Europe was a little bit different. In the U.S., we were really affected by the Delta variant and the associated coverage of it and also coverage of what they thought was an inability to travel to Europe. So that affected us in North America really in 3 ways in Q3, which is why revenues are lower than we had anticipated. The first is that we had a relatively solid book of advertising agreements at the beginning of the third quarter in North America. But a lot of our advertisers were promoting offers to Europe. And then when the Delta coverage came and the media was talking about it being difficult to get into Europe, response declined, advertising decreased, and some of the advertisers actually canceled their inclusions at that time. So that was the first thing. The second thing is that we saw voucher purchases for members, and this was primarily in August and September when the Delta variant was in the news. We saw these purchases decrease. And the third effect on revenues was that to be more cautious, we decided in Q3 to increase the reserve that we have for vouchers that were previously sold and what potential future refunds could come in. So all of that combined had quite an impact on revenues in North America, as you see. In Europe, on the other hand, the press coverage was not that bad, and Delta occurred earlier in the quarter, actually even more towards Q2. In August and September, there was a lot of confidence, particularly in the UK about the ability to travel again. So I would say, while normally, the North America, U.S. and Canada were a little bit ahead of Europe, this time in Q3 Europe was ahead of North America. Now in October, most importantly, we see things normalizing. As we said in the press release, all of these effects are short term. We had a good and better quarter in Q2. We had a more disappointing quarter in Q3. But over the long run, we expect that as travel recovers, we will see an increase in revenue. And because what we clearly see is that our members, they are ready to travel. They are eager to travel, and there's a lot of pent-up demand, particularly for international travel.

Got you. And then in terms of just in general pricing trends, obviously, we're seeing significant inflationary pressures. I would assume that all are seeing this, and then, of course, labor shortages and so forth especially here in North America. I was just wondering how these inflationary pressures tend to affect you and how maybe advertisers as well as just the general population in terms of interest in traveling?

Prices for hotels in the U.S. domestically were certainly very high in Q3. That, on the one hand, made it a bit more difficult for us to source offers. But on the other hand, it also made our members look more for deals. So it's sort of a good thing and bad thing. Since then, prices have really come down. I think that whole surge of travel, particularly domestically, we saw that not only in the U.S., but we also saw it in Germany. We saw it in the UK. That has gone down a little bit. The bigger issue right now is staff shortages rather than inflationary pressure. Many of the hotels are not yet running at full occupancy, but they are planning to return to that. So that's where the biggest effect is in the travel industry with regards to hotels and airlines. And for us as a media company, it means that it affects us in a way that members are looking for more offers that we provide them. But as I said earlier, all of this is relatively short term. The trend is clearly that in 2022, we all expect that people will travel more and also that the imbalances in the labor market will dissipate a little bit.

And in terms of Europe kind of doing a little bit better, you indicated that it might have been driven largely by the UK. The UK is also a big contributor to Jack's Flight Club. Is it disappointing that Jack's Flight Club didn't perform better in the quarter? And then maybe just give your general thoughts about how you still plan to expand Jack's maybe even into North America and what those, the timeline for that might be?

First of all, the positive trends in Europe continue at the beginning of Q4. So that's very good to see. Second, regarding Jack's Flight Club, their offers, particularly in the UK are focused on international travel. And now that international travel is something that consumers and our members are looking for at this time, it wasn't so much in 2021. But 2022 seems to be the year where international travel rebounds a lot. That's why Jack's Flight Club was just hesitating to acquire a lot of new members, but that will probably change in the next year.

And what do you still have thoughts of expanding Jack's to the United States? Or what are your thoughts on the timeline there?

Yes, we are doing this. We are doing this right now, and we just actually made an offer to the members in the U.S. to join Jack's Flight Club. We feel the timing is now better than it was 3 or 6 months ago.

Our next question comes from Steve Silver with Argus Research.

Congratulations on the profitability in the quarter. Just wanted to touch upon something that you mentioned in the management focus on the presentation, mentioning the focus on accelerating member growth in 2022. And I was just trying to get a little more color as to what plans there might be in place to do that, whether you see it's just mostly a byproduct of the pent-up demand that you're seeing? Or maybe you just mentioned the plans to roll out Jack's Flight Club more in the U.S. Just trying to get a sense as to your thinking in terms of the way that you can accelerate member growth in 2022.

It's actually all of the above, Steve, everything that you mentioned plus a few more things. I cannot go too much into detail. But in general, if you look back the last 1.5 years, many people were not so eager to travel. Now that is changing. That has changed a lot. And now we think it's a good environment for us to increase member growth versus where we were this year.

And given the fact that, I guess, the Delta variant put a wrinkle in the plan over Q3, I'm just trying to get a sense as to the lag that you might expect in terms of once the news, especially in North America, becomes a little more favorable, the lifting of restrictions and the like, just where you think that might translate into that pent-up demand being converted back into booked travel and then in the revenue cycle back to Travelzoo?

We already see clearly improvement in October. Actually in every market that we are in, we see that things are getting better. You will see that there is less coverage about COVID at this time. So that's good, and we're generally optimistic. I'm hesitant to say what exactly is the timeline. When we spoke 3 months ago, we didn't expect how badly Delta would hit not only us, but the economy in the U.S. in Q3. No one expected at that time. So we're just a little bit more cautious to give a timeline on where we will be each quarter over the next few quarters. However, we are very optimistic because the trend in general is positive.

Our next question comes from Jim Goss with Barrington Research.

Holger, I’d like to ask you about the relationships you've established in Japan and Australia regarding the royalty-bearing licensing agreements. It appears that these agreements encompass some of the territory you have divested, which is positive. The licensing revenues you reported were modest, amounting to $2,000. Could you discuss how this will develop and the potential value it represents? I understand there was a delay in recording it, so it might just be getting started. Could you provide some context on this?

Maybe, Lisa, you can comment on that, but let me start off by saying that I would say the situation in Asia right now is even far behind Europe and North America. Countries like China, Singapore, Thailand, Bali, Australia reacted much more strongly with regards to travel restrictions, lockdowns and so forth. So that's why the business there right now of the licensees is really very small, and that's why the revenues we are generating are insignificant. But Lisa, do you want to add anything here?

I can also add that Japan has been fairly solid. Although with the restrictions, they are not making as much money as we would have expected, they have been profitable. That’s something we’re actively charging and licensing on. Therefore, we are starting to see some small amounts. I expect that Japan will likely see an increase in the coming quarters since they managed to generate a profit during the lockdown.

Okay.

And with Australia, it's still too soon to say, I would say, in terms of what the developments will be with that.

One thing that I would also like to add, Jim, is that these are very important markets for us to source deals. So for example, the license in Australia and for Southeast Asia is also providing us, our members in Europe and North America with really quite fantastic deals to that region. And that's where we also benefit just beyond the licensing fees, which right now, as you said, are rather small and not significant.

Well, actually, just queued another thought in my mind. If you do have some deals sourced in that area, do you have the potential to book some local travel, relatively speaking that might help build that in anticipation of people from the U.S. and Europe trying to travel to those markets?

Yes, it goes exactly both ways. But as I said, they've been much more restrictive. Australia, New Zealand, Singapore, Thailand, China, Japan, all of these countries are still at this point of time, very, very isolated.

Okay. You also always outlined very nice key demographics for your client base. I wonder if there were any changes in any of those demographics since the pandemic took hold to the good or to the bad.

No significant changes in the profile across the markets. I like to talk about that because I want to show that Travelzoo members are not members who purchase deals because they don't have the money. It's actually quite the opposite. They actually go on trips. They have money to spend. And they are really using the travel deals as an excuse to say, 'Look, this deal is so good. I don't want to pass up on it. So let's go to the source. Let's go to China. Let's go to France or let's go to Mexico because the deal is so fantastic.' In fact, most of the time with the offers, what we see is that both with the offers that our advertisers are promoting to our members, but also the offers that we show our members. With these offers, normally, we see that the majority of the members do not purchase the deal that we tell them about but something that's upgraded either a longer trip, a better room. In fact, we just had an offer to Madeira, where we are launching pretty much Travelzoo exclusive flight, nonstop flight from New York to Madeira. And what we noticed that we're surprised at how many members actually purchased business class, the business class deal rather than economy. So that's why I love to talk about the members. They are not people who we think don't have the money, and that's why they subscribe to us. They actually have a lot of money, and that's why they travel so much, and that's why they love Travelzoo.

Okay. Good point. Finally, I was just wondering if you might comment on any shifts in voucher usage rates versus what you might have expected, and what you might have booked in your revenues and how that is trending?

We generally see redemptions increase, and we anticipate that, that will continue in the next few quarters, which is a good thing because ultimately, we want these vouchers to be used by our members.

We have a question from Ed Woo with Ascendiant Capital.

Have you noticed any shifts in terms of travel, whether people are traveling beyond domestic locations? Are they going farther? And particularly, how is international traveling doing right now?

Yes, we survey our members regularly about their thoughts and behavior. What I can say in a nutshell is 2021 has been the year where we saw primary domestic travel. And now in 2022, we see a lot of international travel plans. Clearly, our members are interested in leaving the country where they live. And the other thing that's quite interesting is we see a much higher percentage of members who are open to the destination that they would travel to. Previously, before the pandemic, members knew where they would want to go to. Now they are much more open. And they say, 'Look, I'm willing to go wherever it's safe, wherever it's good, wherever the good deals and offers are.' And that's really good for us, and that's really interesting also for tourism boards because it allows them to really market their destination to an audience that is very open to coming to a country that they haven't been to before. And that's why actually our business with destination organizations, tourism boards is doing quite well, particularly now at the end of the year. We see that trend also probably continue in 2022.

And we have a follow-up from Michael Kupinski with NOBLE Capital.

One of the keys to the fact that you had profitability in the quarter was a lot of expense reductions and infrastructure reductions. I was just wondering if we have now cycled through all of those cost cuts in this quarter? Or are there still further cost cuts that you're anticipating as you go into this quarter and certainly into 2022?

We experienced a slight increase in expenses from Q2 to Q3 due to upgrading our IT infrastructure. We're now using a third party for all email sending, whereas we used to manage it ourselves. This has a temporary impact on expenses. We expect these costs to decrease as we move through this transition. Overall, we're pleased with the results as we've observed improved email delivery, higher open rates, and better click rates. This change has been implemented in all markets at the beginning of the quarter. Additionally, we're anticipating that expenses will remain at their current levels. There might be a slight increase due to hiring as our business grows, but we don’t plan to return to the expense levels we had before the pandemic.

I would also add that we may spend more in marketing, but that's all for the benefit of the company.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Holger Bartel for closing remarks.

Great, Katherine. So ladies and gentlemen, thank you so much for your time today again and your support. And of course, as always, look forward to speaking with you again next quarter. Have a great day.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may disconnect your line at this time. Have a nice day.