Travelzoo (NASDAQ:TZOO) Q2 2025 Revenue Conference Call Transcript July 26, 2025
Operator:Good morning, and thank you for joining Travelzoo’s Second Quarter 2025 Earnings Call. This call is being recorded. [Operator Instructions] The company would like to remind you that any statements made during this conference call and shown in the presentation slides that are not factual historical information are considered forward-looking statements, made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The actual outcomes may vary significantly from these forward-looking statements. Potential factors that could lead to such differences are outlined in the company’s Forms 10-K and 10-Q, as well as other SEC filings. The company does not assume any obligation to publicly update any forward-looking statements, unless required by law, regardless of new information, future events, or otherwise.
Please check the company’s website for crucial details, including the earnings press release that was released earlier today. A recorded version of this conference call will be accessible on the company’s Investor Relations website atwww.travelzoo.com/ir. Now it is my pleasure to introduce Travelzoo’s Global CEO, Holger Bartel; its Chair, General Counsel, and CEO of Jack’s Flight Club, Christina Ciocca; and its Financial Controller for North America, Jeff Hoffman. Jeff will begin with an overview.
Jeff Hoffman:Thank you, Operator, and hello to those joining us. Today, I am substituting for Lijun, our Chief Accounting Officer. Please consult the management presentation to follow along with our prepared comments. The presentation in PDF format can be found on our Investor Relations website at travelzoo.com/ir. Let’s start with Slide #4. Travelzoo’s total Q2 revenue was $23.9 million, representing a 13% increase from the previous year. In constant currencies, revenue amounted to $23.5 million, up 12% compared to the prior year. Operating income, which management refers to as operating profit, declined due to increased investments in member growth. Q2 operating profit was $2.1 million or 9% of revenue, down from $4 million in the previous year. I will now clarify the reasoning behind our substantial rise in marketing expenses, which impacted EPS.
Slide 5 illustrates the positive return on investment from acquiring new Club Members. On the left, you can see that the average cost to acquire a full-paying Club Member was $28 in Q1 and $38 in Q2. On the right, you can see that we recover this cost quickly. The member pays their $40 annual membership fee upfront in the U.S. case. Moreover, we earned an additional $18 in revenue from transactions during the same quarter. This immediate return does not include increased advertising income or future membership fees and other sources of revenue. Slide 6 serves as a reminder that in subscription-based businesses, membership fee revenue is spread out over the subscription term, while acquisition costs are recorded as expenses when they occur.
Slide 7 illustrates the impact. Although we have immediate payback, the effect on earnings and EPS varies. Increased member acquisition costs, along with only a fraction of revenue recorded in the quarter, led to a lower EPS this quarter. For Q2, this impact resulted in a decrease of $0.13. On Slide 8, you can see that revenue growth was driven by all segments. Positive ROI on member acquisition in the U.K. prompted significant investment there. Jack’s Flight Club revenue rose by 33%. Operating profit declined in both our North America and Europe segments, but saw a slight increase in our Jack’s Flight Club segment. On Slide 9, we outline our revenue categories, including advertising and commerce, membership fees, and other sources. Advertising and commerce revenue totaled $20.9 million for Q2 ’25.
Membership fees generated revenue of $3 million. These fees have become a major contributor to revenue growth. For next year, we anticipate they will represent approximately 25% of total revenue. On Slide 10, you can see that our GAAP operating margin stood at 9%. In Q2 ’25, increasing the number of Club Members will have the effect of reducing the GAAP operating margin. However, with the current positive return on investment, we plan to continue expanding the Club Member base to propel Travelzoo into a high-growth phase. Slide 11 illustrates that investments in Club Members are taking place across all key markets. Over time, we expect margins to recover to previous levels or even surpass them. Slide 12 provides details on non-GAAP operating profit, as we believe it offers a clearer picture of how Travelzoo’s management assesses financial performance.
Non-GAAP operating profit for Q2 2025 was $2.4 million, representing 10% of revenue, compared to a non-GAAP operating profit of $4.8 million in the same period last year. Slide 13 outlines the items excluded from the calculation of non-GAAP operating profit. Please refer to Slide 14. As of June 30, 2025, total cash, cash equivalents, and restricted cash amounted to $11.2 million. Operating cash flow was $1.3 million. We decreased merchant payables by $2.4 million and repurchased 172,088 shares. Looking forward, we anticipate continued year-over-year revenue growth in Q3 2025. We expect revenue growth to increase in future quarters as membership fees are recognized evenly over a 12-month subscription period, with more new members joining and existing Legacy Members transitioning to Club Members.
Over time, we anticipate a significant rise in profitability as recurring membership fee revenue will be accounted for. In the near term, variations in reported net income could occur. We may encounter appealing chances to boost marketing efforts. Marketing expenses are recorded immediately. Now, I pass the conversation to Holger.
Holger Bartel:Thanks, Jeff. We will keep using Travelzoo’s worldwide presence, respected brand, and our solid connections with leading travel providers to secure more Club Offers for Club Members. Travelzoo members are wealthy, energetic, and eager for new adventures. We encourage travel lovers to visit destinations they never thought possible. Travelzoo is the essential membership for those who share our passion for traveling. Today, I’d like to provide some details about the Travelzoo Club membership. Please look at Slide 16. Travelzoo is becoming the hub where global travel enthusiasts connect. The membership enables them to enjoy life to the fullest, offering a variety of benefits, especially Club Offers that are exclusive to members.
Slide 17 and 18 showcase several examples of Club Offers. These include distinctive experiences such as cooking with a Michelin-starred chef in Tuscany at an exceptional price, a luxurious getaway to the Maldives in an overwater villa, or an adventurous trip to Iceland, all of which offer remarkable value and inspire travel enthusiasts to explore even more. As illustrated on Slide 19, global complimentary lounge access during flight delays is another widely appreciated advantage for Club Members. Slide 20 contains additional details about Travelzoo members. Travelzoo is favored by travelers who are wealthy, active, and eager for new experiences. Moving to Slide 22, it offers a summary of our management priorities. We are focused on: increasing the number of paying members and speeding up revenue growth by converting Legacy Members and bringing in new Club Members; introducing additional perks for paid memberships; maintaining and expanding our profitable advertising business through the Top 20 product; boosting revenue growth that supports future profits despite short-term lower EPS; growing Jack’s Flight Club’s profitable subscription revenue; and developing Travelzoo META with careful planning.
Now Christina will give a brief update on Travelzoo META along with Jack’s Flight Club.
Christina Sindoni Ciocca:Thank you, Holger. We are still working on creating the first metaverse travel experiences. These will be accessible through a web browser. As mentioned in earlier earnings calls, we are mindful of developing Travelzoo META in a financially responsible manner. We will share more updates at the appropriate time. Regarding Jack’s Flight Club, revenue rose by 33% compared to the previous year, and the number of premium subscribers went up by 15%. The growth in revenue is mainly due to our investments in expanding the premium subscriber base over the past few years, as well as the increase in membership fees that took effect in Q2 of last year. We intend to keep investing in growth, especially now that we have even more opportunities to do so. I’ll now pass the call to the Operator for questions for Jeff, Holger, and me.
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