Hello, everyone. Welcome to the Travelzoo Second Quarter 2023 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 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 forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. 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 today. 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; its Finance Director, Lijun Qi; and its General Manager, Travelzoo META, Arveena Ahluwalia. Lijun will start with an overview of the second quarter 2023 financial results.

Thank you, operator, and welcome to those of you joining us today. Please refer to 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. Let's begin with slide number 3. Our consolidated Q2 revenue was $21.1 million, up 19% from $17.7 million in the previous year. In constant currencies, revenue was $21.2 million, which is an increase of 20% year-over-year. Operating income, which we refer to as operating profit, increased 84% year-over-year. Q2 operating profit was $3.3 million or 15% of revenues, up from $1.8 million in the prior year. As of June 30, 2023, we had 30.8 million unduplicated members compared to 30.7 million as of June 30, 2022. Slide 4 shows that revenue growth accelerated, particularly in Europe and at Jack's Flight Club. Year-over-year growth rates were higher this quarter in all business segments when compared to growth in the previous year. On Slide 5, we review the revenues and operating profit of our two largest business segments, North America and Europe. North America segment revenue increased $1.8 million from $12.4 million to $14.1 million. The operating profit in North America was $3.8 million in Q2 compared to an operating profit of $3.3 million a year ago. Europe segment revenue increased $1.5 million from $4.4 million to $5.9 million. Europe had an operating loss of $239,000 in Q2 compared to an operating loss of $1.5 million in the prior year. On slide 6, our operating margin reached 15% in Q2, up from 10% in the same period last year. The operating margin of 15% in Q2 2023 is much higher than before the pandemic. Before the pandemic, Travelzoo's reported operating margin was much lower because of losses from our Asia Pacific business segment. In March 2020, Travelzoo decided to transition Asia Pacific to a licensing business going forward. Now the operating margin demonstrates the true profitability of Travelzoo in North America and Europe. Slide 7 shows that in North America, the operating margin reached 27% for Q2. On slide 8, we provided information on non-GAAP operating profit as we believe it better explains how Travelzoo evaluates performance. In Q2 2023, the non-GAAP operating profit was $4.1 million compared to a non-GAAP operating profit of $2.6 million in the prior year. Slide 9 provides more information about the items included in the calculation of non-GAAP operating profit. Please turn to slide 10. As of June 30, 2023, consolidated cash, cash equivalents and restricted cash was $20.2 million. Our cash balance has remained unchanged. Merchant payables decreased by $4.0 million. Slides 11 and 12 detail our revenues by business segment.

I can continue on slides 11 and 12 detailing our revenue by business segment. The North America business segment saw a year-over-year revenue increase of $1.8 million. Turning to Slide 12, the Europe business segment saw a year-over-year revenue increase of $1.6 million. Slide 13 shows how revenue compares to operating expenses. Most of the company's operating expenses, except for marketing, are fixed in the short-term or midterm. We believe we can keep fixed costs relatively low in the foreseeable future while revenues are expected to grow. For Q3 2023, we expect growth in revenue and operating income to continue year-over-year. Let's turn to the next slide. Year-over-year revenue growth accelerated from the first quarter to this quarter. We will continue to leverage Travelzoo's global reach, trusted brands, and our strong relationships with top travel suppliers to negotiate more exclusive offers for Travelzoo members. With more than 30 million members, 8 million mobile app users, and 4 million social media followers, Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. Slide 14 provides more information about Travelzoo members. 87% say they are open to new destinations and travel ideas. Travelzoo members are indeed true travel enthusiasts. Slide 16 provides an overview of what management and our global team are focused on. We want to reach and surpass pre-pandemic numbers of members and accelerate revenue growth, utilize higher operating margins to significantly increase EPS, grow Jack's Flight Club's profitable subscription revenue, and develop Travelzoo META with discipline. At this point, I'd like to turn over to Arveena.

Hello, everyone. Please turn to Slide 19 for an update on the new Travelzoo META service. We opened for founding membership in Q2 2023. The website is meta.travelzoo.com. We are accepting 1 million founding members. Founding members are the early adopters of Travelzoo META, who will play a pivotal role in shaping the future of travel in the Metaverse. Founding membership is a one-time fee of $20. Each founding member will be entitled to one of the world's first personality-based, emotionally-driven Travel Companions, NFTs from an interactive gallery. No two travel Companions are the same. Only founding members will also receive an exclusive first-year annual subscription rate and a sneak peek at the first upcoming beta Metaverse travel experiences. Please turn to Slides 20 through 23 to see a snapshot of the founding members' only interactive gallery. On Slide 24, you can get a glimpse of the travel companion. I'm handing over to the operator for questions for Holger, Lijun, and me.

Thank you. The floor is now open for questions. We'll take our first question from Jim Goss with Barrington Research. Your line is open.

Great. I appreciate the opportunity. One thing I'm very focused on is the cost structure because I think that was a key advantage and opportunity you had coming out of COVID to perhaps rightsize the cost structure. I wanted to ask if you think it's where it needs to be right now, or do you think it will need to increase in certain areas? And how things match up between the U.S. and Europe?

Hi, Jim. As we said earlier, we believe that our fixed costs are relatively stable and will remain stable for the next few quarters. We believe so. We have some opportunities to decide how much we would like to spend on marketing. This quarter, we had great opportunities in the UK and for Jack's Flight Club to spend a little bit more on member acquisition. That's why costs are a little bit up compared to the previous quarter. But in general, we believe they will remain at the current level for the foreseeable future.

Okay. A couple of other things. I was wondering what you might think of in terms of margin profile overall or U.S. versus Europe, given that you have been able to take advantage of leveraging the fixed cost structure and where you think you might be able to rise to at whatever you think of as a maturity level. Maybe even how long it might take to get there?

We believe that for the company overall, operating margins can go higher. You see that the operating margin in North America has been around 30%. Europe is far behind that, but as Europe is catching up, we expect the operating margins in Europe to increase as well. We believe that the company as a whole can reach similar levels to what we are seeing in North America.

Okay. And maybe one last grouping. Jack's Flight Club seemed like it was a great opportunity. The ROI is immense so great to this point. I'm wondering what your objectives might be with Jack's Flight Club. Do you feel there are any subscription opportunities you've been able to enjoy with Jack's Flight Club that you might apply to the overall operations of the core business?

Yes. We're happy with Jack's Flight Club right now. We finally, after coming out of the pandemic, see members increasing. In fact, paying subscribers were up 30%. You don't see that yet in the revenues because revenue gets reported delayed. So we're quite optimistic about Jack's Flight Club and the contribution it can make to the company overall.

And in terms of using a subscription model in the core business, is that still not the best idea?

Yes, that's something we are looking at for sure. We are conducting some tests. At the appropriate time, we will update you and investors about what we are planning to do.

All right. Thanks very much. I’ll give up the floor. Appreciate it.

Sure. Thanks, Jim.

Thank you. Next, we'll go to Ed Woo with Ascendiant Capital. Your line is now open.

Yes. Thank you very much for taking my question. There's been a lot of buzz even in the travel industry about AI and machine learning. Is Travelzoo doing anything in that area?

Hi, Ed, it's actually something that we have been looking at for quite a while before it even became such a buzzword recently. Yes, we indeed have an initiative underway to leverage AI in a couple of areas of our business.

Great. Is there anything you could talk about? Or is it something that you're going to wait until the time is right to discuss?

It's the second. We would like to wait until it's time to discuss also we don't really want to inform our competitors and others about what we are planning to do.

Great. Well, it's glad to hear that you guys are also involved in this. And then my next question is on META. You said that the launch has happened in the second quarter, and you got 1 million members with graduations. Is that on track with what you guys are expecting? Do you have formal expectations for what number you'll be aiming for by the end of this year?

Arveena will go into that.

Thanks, Holger. Hi, Ed, so yes, as I've been mentioning in previous calls, we are building Travelzoo META in phases with a very disciplined manner. We did launch our founding membership phase, which you can access at meta.travelzoo.com, in Q2. While we cannot disclose any data yet because we are maintaining confidentiality, we are highly encouraged by the quarterly results and look forward to sharing that with you in due time.

Great. Thanks for answering my questions, and I wish you guys good luck.

Next, we'll go to Steve Silver with Argus Research. Your line is now open.

Thanks, operator, and thanks for taking the questions. First, I want to congratulate you guys on the continued progress in the balance sheet. It's nice to see that the merchants' payables continue to come down at a significant rate while the cash is being maintained. My main question is just how you're thinking about the recovery in the business, particularly in Europe, given the fact that you've mentioned on the last few calls that Europe is lagging behind North America in terms of the operating margin you're getting in each place, yet the company was able to issue a new share repurchase plan. I'm trying to get more color on what you're seeing out of Europe that gives you the confidence that the operating margin will continue to recover, supporting the share repurchase plans.

Yes, great, Steve. We are indeed very happy with the improvements in the balance sheet. Thanks for noticing that. If you compare our balance sheet to one year ago, it has improved significantly. We were able to do so because we executed exactly what we've been saying for the last year, which is we want to accelerate revenue growth, increase operating margins, increase EPS, improve our balance sheet, and grow Jack's Flight Club's profitable subscription revenue. We are seeing all of this happening. So we are actually quite happy and also very pleased with the second quarter. Revenue growth overall is higher than Q1 and has accelerated compared to what we saw last year. We have very good momentum coming out of the pandemic. Regarding Europe, one should not just look at the absolute numbers. Yes, the revenue is the same in Q2 as it was in Q1, but the growth rate year-over-year is now 35%. So finally, Europe is also gaining that momentum. As we said, with a delay, we expect it will also reach pre-pandemic levels as we continue on this trajectory. We are quite pleased. And what was your third question? It was related to the share repurchase.

Yeah. In terms of how the recovery will unfold, yeah. Thanks.

Yes, the recovery is fully on track. The profitability of the company is higher than it has ever been. We are generating lots of cash, which gave us the opportunity to repurchase a substantial amount of shares already last quarter. We also believe we have the opportunity going forward to repurchase more shares, which is why we announced the share repurchase program yesterday.

Next, we'll go to Patrick McCann with NOBLE Capital Markets. Your line is open.

This is Pat for Mike Kupinski. My first question is if there's any particular impact from economic weakness as it relates to consumers' travel budgets. There might be the appetite for travel, but are consumers reducing how much they're spending? Have you seen anything on that, any impacts on the business?

Yes, we are indeed seeing a trend that demand for hotels is weakening. You probably hear that airlines and planes are quite full, but that's also a result of significantly reduced capacity. However, what we are hearing from hotels in both North America and Europe, particularly on the higher end, is that the bookings they are receiving this year are not as strong as what they had last year. The start of the year was quite strong, and they all expected business would be very good again, even better than in the summer of 2022, but that hasn't happened to the level of expectations. This is actually good for us because more hotels and other travel providers are coming to us to create specific offers that encourage our 30 million members to take additional trips, explore new destinations, and travel more. So, yes, we see this trend, this very strong travel demand coming out of the pandemic, weakening, and as I said, it is good for us. I believe in the second half of the year, we will have even better opportunities to create exclusive offers for our members.

Sure. And kind of piggybacking on that, are people booking any closer to the dates as far as closer or further away from the travel dates? Has that trend been moving in one direction or another as demand has weakened?

Well, we are not an online travel agent, so we are not the booking side. However, we do hear from our partners what they are experiencing. This year, people have become more comfortable booking in advance. That is why I earlier mentioned bookings at the beginning of the year for summer travel were quite strong. That's different from last year, where people were booking more last minute. What we are hearing is that the booking window is returning to what it was before the pandemic. In general, we see a lot of normalization.

Got you. Thank you. I also wanted to ask about Travelzoo META. Are there any milestones we can look for going forward?

So, I can take that. We, at this point, as I just mentioned, launched our founding membership phase, and we do have milestones that we're tracking. It's just a little too early to disclose, but we're attempting to be the first movers. As we approach those milestones, we will update everyone.

Okay. Thank you and congrats on the solid quarter.

So look Pat, we are very excited to be in this industry. It's a great industry to be in because what the pandemic showed to people is that it is essential for them to leave home and travel. I think the interest in travel is higher than it ever was before the pandemic. Yet, of course, inflation and potential economic weakness is putting stress on consumers' budgets. This also creates opportunities in the travel industry for us, where we help travel companies drive demand into areas with less demand and during off-peak periods. In this way, we create incredible offers for our members that encourage them to travel more and fulfill their desire to explore new cultures. We're in a good spot, and we are very excited. It's a good place to be. But thank you very much.

Excellent. Thank you.

And I show we have no further questions at this time. I'll now turn the call back over to Mr. Holger Bartel, for any additional or closing remarks.

So dear investors, thank you for your time and support. We 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 lines at this time. Have a nice day.