Hello, everyone. Welcome to the Travelzoo Fourth 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 the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings.
Unless required by the 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 company's investor relations website at travelzoo.com/ir. Now, it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel, its Chair, General Counsel, Head of Global Functions, CEO of Jack's Flight Club, Christina Ciocca, and its Finance Director, Lijun Qi. Lijun will start us 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 website at travelzoo.com/ir. Let's begin with slide number four. Travelzoo's revenue, operating profit, and member count all increased year-over-year. Our consolidated Q4 revenue was $21.1 million, up 14% from $18.6 million in the prior year period. In constant currencies, revenue was $20.8 million, an increase of 12% year-over-year. Operating income, which we as management called operating profit, increased 25% year-over-year. Q4 operating profit was $4.5 million or 21% of revenue, up from $3.6 million in the prior year.
As of December 31, 2023, we had 31.1 million unduplicated members, compared to 30.4 million as of December 31, 2022. Slide five shows that strong revenue growth continued in our Europe segment and at Jack's Flight Club. On slide six, we go into more detail about the revenues and the operating profit of our two largest business segments, North America and Europe. North America Q4 segment revenue increased 5% year-over-year to $13.8 million from the prior year period. Operating profit in North America was $4.0 million in Q4, compared to an operating profit of $4.2 million a year ago. Europe Q4 segment revenue increased 34% year-over-year to $6.3 million from $4.7 million in the prior year period.
Europe had an operating profit of $832 thousand in Q4, compared to an operating profit of $42 thousand in the prior year period. On slide seven, you can see that our GAAP operating margin was 21% in Q4, up from 19% year-over-year. Slide eight shows that in North America, the GAAP operating margin remained high at 29%. On slide nine, we provide information on non-GAAP operating profit, as we believe it better explains how Travelzoo's management evaluates financial performance. Q4 2023 non-GAAP operating profit was $5.2 million. That's 25% of revenue compared to non-GAAP operating profit of $4.8 million in the prior year period. Slide 10 provides more information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide 11.
We maintained a solid cash position even after repurchasing 600,000 Travelzoo shares during the quarter. As of December 31st, 2023, consolidated cash, cash equivalents, and restricted cash was $16.4 million, a decrease of $3.0 million from December 31st, 2022. Comparably, merchant payables, which are future payments that we have to make to partners when vouchers are redeemed, decreased by $10.7 million over the same period. Slide 12 and 13 detail our revenues by business segment. The North America business segment saw a year-over-year revenue increase of 5% to $13.8 million. This was driven by revenue from travel. Revenues from local, consisting of local entertainment experiences, are still expected to recover from the pandemic. Turn to slide 13. The Europe business segment saw a year-over-year revenue increase of 34% to $6.3 million.
This was driven by particular strength in travel. Slide 14 show how revenues compare to operating expenses. Most of the company's operating expenses, except for marketing, are relatively fixed in the short to mid-term. We believe we can keep fixed costs contained in the foreseeable future, while revenues are expected to grow. Higher revenues will just increase operating margins. For Q1 2024, we expect continued growth in revenue, albeit at a reduced pace from 2023. We expect a high cash flow from operating activities and a high profitability. We plan to continue our outstanding share repurchase program. In December 2023, we announced the introduction of a membership fee for Travelzoo beginning January 1st, 2024. Existing members as of December 31st, 2023, are exempt from the fee during 2024. Therefore, we do not anticipate generating membership fee revenue from existing members before 2025.
Now I turn the discussion over to Holger.
Thank you, Lijun. Q4 concluded a strong year for Travelzoo, with each quarter achieving year-over-year revenue growth, profitability, and positive cash flow from operations. We will continue to leverage Travelzoo's global reach, our trusted brand, and strong relationships with top travel suppliers to negotiate more exclusive offers for our members. It is in times of large increases in travel prices that Travelzoo is most valuable for consumers. Travelzoo members enjoy high-quality travel experiences that represent outstanding value. With more than 30 million members, 8 million mobile app users, and 5 million social media followers, Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences. Slide 15 provides more information about Travelzoo members. 91% say they are open to new destinations and travel ideas. We are indeed the club of travel enthusiasts.
Slide 17 provides an overview of what management and our global team are focused on. We want to grow the number of Travelzoo members, leverage our strong existing relationships with top travel suppliers, and add new relationships to negotiate more exclusive offers, utilize higher operating margins to increase EPS, grow Jack's Flight Club's revenue, and develop Travelzoo META with discipline. At this point, I'd like to turn over to Christina for a quick update on Jack's Flight Club and Travelzoo META.
Thank you, Holger. Jack's Flight Club had a strong year in 2023, closing Q4 with a 29% increase in revenue year-over-year and a 21% increase in premium members. In 2024, we are excited to keep up this momentum with continued investment in member growth, including in new markets like Canada, implementation of an inflationary price increase for new members, and further refinement of our value proposition, all of which we believe will help us to find better marketing efficiencies and grow profitably. Now I'd like to speak about Travelzoo META. Exciting news from Travelzoo META is that we are close to producing the first metaverse travel experience. It will be browser-enabled. We expect to bring this experience and more new immersive travel experiences to founding members of Travelzoo META on the new Travelzoo META app.
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. Now I'm handing over to the operator for questions for Holger, Lijun, and myself.
Thank you. The floor is now open for questions. If you do have a question, please press the star followed by one on your touch tone phones at this time. Once again, if you do have a question, ladies and gentlemen, that is a star followed by one on your touch tone phones. Please hold while we call for questions. Thank you. Your first question comes from the line of Michael Kupinski from Noble Capital. Please go ahead.
Thank you. Thank you for taking the questions, and congratulations on a good fourth quarter and a strong 2023. I just have a couple of questions here. You indicated that there seems to be... You know, in 2023, there was this pent-up demand for people willing to travel following the pandemic. I think that's what you said. What are the dynamics that you're seeing, especially in North America? Because obviously we didn't—we saw slower growth there versus Europe, which is continuing quite strong. Can you just kind of give us the dynamics of what's happening between those two continents?
[audio distortion]
Sir, you might have yourself on mute. Please go ahead now.
Were they able to hear my questions? So I was just asking about the pent-up demand for people traveling. You know, I know that in 2023, we had, you know, the kind of people pent-up demand for following the pandemic. What are we seeing now versus North America and Europe? What are the dynamics at play here?
Holger, is your line working? Sorry, Michael.
Hello, Michael. Hello, hello, Michael. Hello-
There we are. Okay.
Hello, Michael. So it looks like there was a technical difficulty, but I could hear you. Okay. Speaking about the industry, it looks like 2024 will be another strong year for travel. Not quite as strong as 2022 and 2023. As you said, the pent-up demand is slowly ebbing. We are hearing from our partners that in North America, bookings from the partners are good. Europe, maybe a little bit less, and that might have to do with the wars that are going on in Ukraine and in, Gaza, Israel. So, overall, probably still a positive year. Overall, we're seeing stronger growth in Europe, as you saw. Growth in North America slowing down a bit, but in general, should be a similar year than before.
So, do you anticipate that North America is going to pick up the pace a little bit? Or do you think that you're anticipating that North America will lag Europe again in 2024?
Europe is finally catching up, as we expected, so we're very happy to see that. North America, indeed, was a little bit slower in Q4. The reason for that was that a couple of advertisers were just becoming cautious, a bit more cautious because of the wars that I just spoke about. I think this is just a temporary situation, so we will see how the rest of 2024 will develop. We are optimistic.
Gotcha. And then it seems in 2023 that you throttled back a little bit on your sales and marketing spend. I think it was like 45% of revenues. It was 47% in 2022. Can you talk a little bit about your outlook for sales and marketing spend in 2024?
In Q4, our marketing spend tends to be a bit lower because we don't see it as a good quarter or environment for advertising travel offers. For 2024, I cannot really comment much because we now move to a paid membership model, so, I'm really not able right now to predict what we will see in 2024.
I got you. In general, do you anticipate that will adversely affect margins as you kind of move towards a more of a paid subscription model? What are your thoughts in general?
I really cannot comment right now. Maybe next quarter we will know more, but right now I can't, just can't comment on that.
Okay, fair enough. I believe that I know the answer to this question, but I'm gonna ask it anyway. The merchant liabilities came down dramatically, about $12 million, and the cash was relatively stable. Can you just kind of give us what are the dynamics going on right now to account for that? And I know that you, you've indicated in the past that there were some of these merchant liabilities that probably won't be used, but I was just wondering if you can just kind of give us an idea of what the dynamics are there.
Yes, thank you. We're very happy with the improvements of the balance sheet, and we expect that Merchant Payables will normalize around the level where we are right now and where they've been before the pandemic.
Okay. That's all I have for now. Thank you.
Sure. You're welcome, Michael.
Your next question comes from the line of Jim Goss from Barrington Research. Please go ahead.
Good morning. I was wondering what sort of experience you've had so far since you've gone to a paid model. Have you been attracting sign-ups? And do you have any expectations for the take rate for the existing subs becoming paid subscribers? And how you might treat the existing subs who choose not to. I think you've talked in the past about maybe giving them occasional emails or something of that nature. But I wonder if you might have fleshed out that strategy at all.
Hi, Jim. Yes, we do see, of course, sign-ups of paid members, members who are paying the membership fee, and, the number is a bit higher than what we anticipated, so we're happy about that. But in general, it's just too early for me to provide a lot of comment. I hope I can provide more next quarter, but right now I'm just not able to provide a lot of comments on, on this.
Okay. I noticed Jack's Flight Club had a little bit of a step up, too. I wonder if you might talk about your promotional plans for continuing that process and gaining some greater subscriber base for JFC.
Yes, we're happy how this develops. Christina can answer your question.
Sure. So in 2024, we're looking to add a couple of additional-
promotional activities and sales. We typically have one in January and one in July and one in November, and we are thinking to add one or two additional to see how that does over the course of the year. We try to obviously space them out so we don't cannibalize ourselves with each of the sales. We're also, as I mentioned, looking to expand into new markets. Our first will be Canada. We're looking forward to seeing the metrics and numbers for that new market. We anticipate that we'll find kind of better marketing efficiencies there, which will allow us to grow well and grow profitably.
Maybe my final question, to the extent that you now have a subscription plan for both, the core service and Jack's Flight Club, is there any thinking about potentially, you know, creating a, you know, a dual, kind of like a combination membership where someone might be able to get, say, a discount on the sum of both of them and then gain access to both, and then you get pick up subscriber base that way?
Yes, it's a great idea, Jim. We don't do it yet, but, we are looking into it for the future. Very good idea, of course.
Okay, I'll leave it go at that for now. Thanks.
Thanks.
Your next question comes from the line of Steve Silver from Argus Research. Please go ahead.
Thank you, operator, and congratulations to everybody on the strong results in Europe and the return to profitability there. It's great to see. I guess my question is also about the subscriber base now. Holger, you had mentioned a little while ago that there might be some near-term softness, particularly in North America, as a result of the conflicts and the wars going on, both in Ukraine and now in Israel and the Middle East. Just want to get a sense as to the timing of your announcement of the membership model. I know you've spoken about it over the past several years, since the Jack's Flight Club acquisition was first announced, that the company would be looking to move towards a subscriber model over time.
But given the fact that there is just a lot of turmoil in certain regions around the world, I was just wondering if there's any insight you could share in terms of the thought process as to moving to the membership fee now, as compared to possibly just seeing how the global situation unfolds over time?
Yes, Steve. One is not really related to the other at all. In fact, as I said, we saw a couple of advertisers becoming a bit more cautious because of the wars in Ukraine and Israel. However, we still see strong demand and interest from our members in these, in general, in traveling. So, it didn't really affect our decision, and we're very happy that we made the decision to move to this new paid model. So far, we are really fine with the timing, so I didn't have any... I didn't really see any connection of the two.
Okay, that's helpful. And, just one more. I know you'd mentioned the share repurchases and that you expect that to continue, moving forward and, just the concept that you've spoken about over time in terms of Meta being grown very diligently and with discipline. I'm just trying to get a sense, as Meta does ramp up, do you expect to be able to grow Meta to where you want it to go while maintaining modest investment levels? Or would you expect that at the appropriate time, there would be more resources put into Meta, to eventually grow that unit to where you want it to be?
It's the first. We have always said we want to manage it and grow it financially in a prudent manner, and we will continue to do so. We are generating good cash flow, so that's why we are planning to complete our share repurchase, share repurchase program.
Okay, thanks for the color, and congratulations.
Thanks, Steve.
Your last question comes from the line of Ed Wu from Ascendiant. Please go ahead.
Yeah, congratulations on the quarter. Two areas in the travel industry that's growing really rapidly is alternative accommodations as well as, you know, bookings for activities. Can you talk about how you guys are trying to, you know, be active in that space?
It was not an area that we actually did much in the past, but now that we are up and we are paid membership model, we are speaking with some companies about partnerships, in the future. So, we are better positioned now to enter these conversations, so thanks for asking this, Ed.
Great. That's all the questions I have. I wish you guys good luck. Thank you.
Thank you.
Okay, I'll now turn the call over back to Mr. Holger Bartel.
Dear investors, thank you so much for your time and support today. 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.