Good morning, and welcome to the Travelzoo Third Quarter 2024 Earnings Call. Today's conference is being recorded. The company would like to remind you that all statements made during the 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 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 the conference call will be made available on the company's Investor Relations website at travelzoo.com/ir. Now it is my pleasure to turn the call over to the floor over to Travelzoo's Global CEO, Holger Bartel, its General Counsel and Head of Global Functions and CEO of Jack's Flight Club, Christina Ciocca, and its Finance Controller for North America, Jeff Hoffman. Jeff will start with an overview.

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 site at travelzoo.com/irr. Let's begin with Slide number 4. Travelzoo's consolidated Q3 revenue was $20.1 million, down 2% from the prior year. In constant currencies, revenue was $20 million. This was a little below our expectations. Operating income, which we as management call operating profit, increased 30% year-over-year. Q3 operating profit was $4 million or 20% of revenue, up from $3.1 million in the prior year. Slide 5 shows that higher profits came particularly from our Europe segment. On Slide 6, we break down our categories of revenue: Advertising, Membership Fees, and other. Advertising revenue was $18.7 million for Q3 2024. Revenue from membership fees was $1.4 million. Membership fee revenue is still small. We expect to substantially drive revenue and profit growth in 2025 for the following reasons. At the beginning of 2024, we introduced a membership fee. Those who were already members at that time are exempt from the fee during 2024 but have to pay in 2025. We call this group legacy members, and they represent over 95% of current members. Slide 7 shows an example of membership fee revenue recognition. Revenue from membership fees is recognized ratably over the period of the subscription. Member acquisition costs, however, are fully recorded and recognized as expenses immediately. On Slide 8, you can see that our GAAP operating income remained high at 28%, which is typically our slowest quarter of the year. Slide 9 shows that in North America, the GAAP operating margin remained high at 25% for Q3 2024. In Europe, the margin increased to 17%. On Slide 10, we provide information on non-GAAP operating profit as we believe it better explains how Travelzoo's management evaluates financial performance. Q3 2024 non-GAAP operating profit was $4.9 million, that's 25% of revenue compared to non-GAAP operating profit of $3.9 million in the prior period year. Slide 11 provides information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to Slide 12. With operating cash flow of $5.3 million, we maintained a solid cash position even after purchasing 552,679 shares of the company's outstanding common stock during the quarter. As of September 30, 2024, consolidated cash, cash equivalents, and restricted cash were $12.1 million. Going forward, we expect our cash balance to increase again as we collect membership fees at the beginning of the subscription period. Slide 13 shows how revenues compared to operating expenses. Most of the company's operating expenses, except for marketing, are relatively fixed in the short to midterm. We believe we can keep our fixed costs relatively low in the foreseeable future. Higher revenues would thus increase operating margins. Looking ahead for Q4 2024, we expect growth in revenue year-over-year, albeit at a smaller pace than in 2023. However, there could be unexpected fluctuations. We also expect for Q4 2024 higher profitability year-over-year and quarter-over-quarter. For 2025, we expect substantial growth in revenue as a result of additional revenue from membership fees. I'll now turn the discussion over to Holger.

Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brands, and our strong relationships with top travel suppliers to negotiate more club offers for our members. Travelzoo members are affluent, active, and open to new experiences. We inspire members to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Slide 14 provides more information about Travelzoo members. 91% say that we are open to new destinations and travel ideas. We are the club for travel enthusiasts. On Slide 16, we provide an overview of our management focus. We are working to convert a large number of legacy members into paying members from January 1, 2025, onwards. We aim to add new benefits to make paid membership even more valuable, retain and grow our profitable advertising business from the popular top 20 products, utilize higher operating margins to increase EPS, project Jack's Flight Club's profitable subscription revenue, and develop Travelzoo META with discipline. I'm now handing over to Christina, who will speak about Jack's Flight Club and Travelzoo META.

Thank you, Holger. In Q3, Jack's Flight Club had year-over-year increases in revenue of 11% to $1.2 million and in premium subscribers of 14%. Earlier in the year, as previously announced, we implemented a price increase for our new subscribers only, expanded into Canada, and improved our marketing strategy. Because of the revenue deferral for subscriptions, we're now starting to see the payoff from these initiatives, including strong CPAs and marketing efficiencies, and we expect this trend to continue into Q4 and 2025. Our focus continues to be on investing in growth while maintaining profitability. Now I'd like to speak about Travelzoo META. We are working on the production of the first metaverse travel experiences; they will be browser-enabled. As stated in previous earnings calls, we are conscious of developing Travelzoo META in a financially disciplined way. We will provide additional updates in due time. I'm now handing over to the operator for questions for Holger, Jeff, and me.

We will take our first question from Theodore O'Neill with Litchfield Hills Research. Please go ahead, your line is open.

Okay, thanks very much. I have two questions for you. First one for Holger. Last quarter, you talked about travelers becoming more cost-conscious and price increases for flights and rooms would moderate. Is that still what you're seeing out there? Are you seeing any more or less of that? And my second question is on the operating margin between North America and Europe. I would have expected the European margin to have been lower should just be relative economic growth there. I would expect the North American margin to be about where it is, but I was just a little surprised about the strength in Europe, and I was wondering if you could give us some details on that. Thank you.

So on your first question, yes, we are hearing from hotels and airlines that they are seeing generally less demand, better prices, and more deals. You might have seen the big brands like Marriott and InterContinental launching big sales on their hotels for sure. So that trend continues or even accelerates. And yes, consumers are looking for value. We also see that they are looking for less crowded destinations on one hand because they want to go to places that are not overcrowded, and on the other hand, places that are less popular or destinations that offer generally better value, and that's where we are actually strong by motivating our members to go to places where they haven't been, places they didn't think about, or they didn’t even know existed. And on the second question, yes, we're happy about Europe. The profit margin there is increasing and getting closer to the one-off North America. We just operated very efficiently in Europe this quarter, and we expect this trend to continue.

Thank you very much.

We'll take our next question from Michael Kupinski with NOBLE Capital Markets. Please go ahead, your line is open.

Thank you, and good day everyone. I have a few questions about the membership. Can you share your expectations for the balance between advertising and membership fees in 2025, especially as you implement the membership fees? Additionally, you mentioned that Q4 should see some revenue growth. Are you noticing any positive trends in the Americas? What about in Europe? Are there any membership fees beginning to impact Q4 that might explain any improvement? Lastly, regarding the rollout of membership fees, I know you're experimenting with different pricing models and durations. Have you adjusted your original plans for membership fees going forward? If so, what are those changes?

…repeated again, we get membership revenue to increase quite substantially next year. With regards to Q4, we see membership fee revenue increasing more in 2025, just because the existing members are still exempt. And you also asked about, what was the next question again about membership fees in Q4.

Yes. If you're starting with increasing.

If you see in Q3, the U.S. was really the only market where revenues were down against our expectations. So it wasn't a big deal for us. We just had some advertisers move their spend into the future. And then we had one who was supposed to launch in Q3, their website wasn't ready in Q4. So in Q4, we expect things to normalize. But as I said, no, we don't expect yet substantial growth in membership fees in Q4 just because of the strategy we have pursued that we are giving the existing members an exemption in 2024.

And Holger, I missed the first part of my question, it was a little jumbled. I think that was related to the revenue mix between advertising and membership fees in 2025. Could you just repeat that for me?

I said we don't make any forecast yet with regards to how many members, how many paid members we expect in 2025. So we also don't make any forecast yet for how much membership revenue we expect to generate in that year.

Got you. Okay, thank you.

And we will take our next question from Steve Silver with Argus Research. Please go ahead, your line is open.

Thank you for the question. Holger, in the management focus slide, you mentioned the addition of new benefits to the paid membership. I'm interested in any updates on what this might include, especially regarding the potential bundling of the paid membership with Travelzoo META memberships once META is ready for a wider launch. I'm also curious about the specific details concerning the paid membership benefits. As a follow-up, considering the strong cash flows the company reported for Q3, what are your plans for cash usage moving forward? Are you thinking about continued share repurchases or investing in marketing for customer acquisition related to the paid membership?

So Steve, regarding member benefits, we currently have four initiatives in progress, and our members can expect more information on these in the coming weeks. These initiatives primarily focus on enhancing travel experiences for our Travelzoo members, especially those who are travel enthusiasts. You will hear more about this soon. As for cash flow, we recently announced another share repurchase program and will continue to buy back shares, as we consider it a worthwhile investment at this time with an attractive stock price. Additionally, in 2025, when we anticipate even greater cash flows, we believe we can increase our investments in marketing and expanding our member base, while also improving earnings per share.

And we will take our next question from Ed Woo with Ascendant Capital. Please go ahead, your line is open.

Thank you for taking my question. Congratulations on the growth; Jack's Flight Club has seen impressive year-over-year growth. Is it now available in all markets? I know you recently expanded to Canada. Do you believe that in the long term, Jack's Flight Club could attract a majority of Travelzoo members?

Sure, I can answer that. So for right now, we're in the U.K., Canada, the U.S., and certain countries throughout Europe. We are looking into other countries, particularly in Europe, where we can expand. We're also considering whether we launch with alternative language additions beyond just English. So that's in our consideration set as we start our strategic planning for 2025. And then in terms of conversion of Travelzoo members, that was always an intention when we acquired this business. We have seen that Travelzoo members have interest in Jack's Flight Club. Now that Travelzoo has become a paid membership, we are reconsidering what that will look like and ways in which we can offer both services to Travelzoo members. So that is still a bit of TDD, but is in progress in terms of discussions.

What is the membership fee for Jack's Flight Club in the U.S. versus in Europe? Are they pretty comparable?

Yes, it's comparable and it's $60 in the U.S. And in Europe, it depends on the currency, but basically comparable for conversion.

Great. Well, thanks for answering my questions. I wish you guys good luck. Thank you.

And we'll take our next question from Patrick Sholl with Barrington Research. Please go ahead, your line is open.

Hi, thank you. I just wanted to follow up on your comments about improving the travel experience for frequent Travelzoo users. With the shift towards a subscription service, are there specific areas where you believe further investment is necessary, such as customer service or deal research? I have a couple more follow-up questions as well.

Over the last couple of weeks, I had the pleasure of participating in many meetings with our existing members. We organized lunches in the U.K., U.S., and Canada. It provided a good opportunity to learn even more from our members. And we are very excited about 2025, particularly because the most important thing that our members are getting from Travelzoo are the special prices on exclusive experiences that we negotiate for them. When we explain to them why a membership fee, which makes Travelzoo what you call a closed user group, allows us to deliver even better offers to our members, then they really understand why we are going in this direction. They like it because ultimately, the membership fee, which is a pretty nominal amount, $40 in the U.S., GBP 30 in the U.K., is relatively insignificant compared to the hundreds or sometimes thousands of dollars they can save with the Travelzoo deal. So once they understand it and see that it allows us to scale things like price parity for hotels and so forth and bring them more and better offers, they get very excited. And that's why we feel very positive about this move, and we feel very good about 2025. Now, Pat, you said you had a couple of more questions.

Yes. So I mean, maybe it's just sort of asking something that Mike had another way, but with your advertisers, I guess, what are their expectations on the reach of your membership base when you transition to the legacy numbers onto the paid product?

So we decided that for our advertisers, we will maintain their reach in 2025. Even if you don't convert to a paying member in 2025 and you have been a Travelzoo member for a long time, you will still be able to see the offers and top trends. You will see them a bit later than the others, and there's lots of other benefits that you are missing out on. You cannot buy the offers that we negotiate exclusively. But for our advertisers, we have come up with a plan that maintains their reach for them. And with this strategy, we also anticipate maintaining or even growing our advertising revenues next year. Lastly, think of a member who is paying a membership fee; that member is now even more looking forward to the offers that we are receiving. They are more engaged to pay for something that previously was free. So now you really want to take advantage, and we see that members already in 2024, who pay the membership fee because they joined in 2024, are more active and more engaged than those who haven't paid a membership fee previously.

Okay, thank you.

And this does conclude the Q&A portion for today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks.

Yes, dear investors, thank you so much again for your time and support, and we look forward to speaking with you again next quarter. Have a great day.

This concludes today's Travelzoo third quarter 2024 earnings call and webcast. You may disconnect your lines at this time and have a wonderful day.