Hello, everyone. Welcome to the Travelzoo First 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 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 Travelzoo Investor Relations website at travelzoo.com/ir. It is 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 an overview of the first quarter's 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 three. Our consolidated Q1 revenue was $21.6 million, up 17% from $18.5 million in the previous year. In constant currencies, revenue was $22.1 million, which is an increase of 19% year-over-year. Operating income, which we as management call operating profit, more than doubled year-over-year. Q1's operating profit was $4.7 million or 22% of revenue, up from $1.9 million in the prior year. As of March 31st, 2023, we had 30.5 million unduplicated members, compared to 30.7 million as of March 31st, 2022.
On slide four, we go into more detail about the revenues and operating profits of our two largest business segments, North America and Europe. North America segment revenue increased 26% year-over-year from $11.7 million to $14.8 million. The operating profit in North America was $4.5 million in Q1, compared to an operating profit of $1.8 million a year ago. Europe segment revenue remained consistent year-over-year. At constant currencies, Europe revenue increased 6% year-over-year. Europe had an operating profit of $457,000 in Q1, compared to an operating profit of $178,000 in the prior year. On slide five, you can see that our operating margin reached 22% in Q1, up from 11% in the same period last year.
The operating margin of 22% in Q1 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 make Asia-Pacific a licensing business going forward. Now the operating margin shows the true profitability of Travelzoo in North America and Europe. Slide 6 shows that in North America, the operating margin even reached 31% for Q1. On slide seven, we provide information on non-GAAP operating profit as we believe it better explains how Travelzoo evaluates performance. Q1 2023 non-GAAP operating profit was $5.5 million, compared to a non-GAAP operating profit of $2.7 million in the prior year. Slide eight provides more information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to slide nine.
As of March 31st, 2023, consolidated cash equivalents, and restricted cash was $19.8 million. Our cash balance remained unchanged. Merchant payables decreased by $4.6 million. Slide 10 and 11 detail our revenues by business segment. The North American business segment saw a year-over-year revenue increase of $3.1 million. Turning to slide 11. The Europe business segment, which we report in USD, was and continues to be impacted by the strong dollar. We saw revenue in Q1 remain consistent. In constant currency, revenue increased $401,000 year-over-year. Slide 12 shows that pandemic led to a significant reduction of fixed costs. We believe we can keep our fixed costs relatively low in the foreseeable future, while revenues are expected to grow. For Q2 2023, we currently expected growth in revenue and growth in operating profit to continue year-over-year.
Now I turn over to Holger.
Thank you, Lijun. We will continue our strategy of leveraging Travelzoo's global reach, trusted brand, 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 13 provides more information about Travelzoo members. 87% say they are open to new destinations and travel ideas. Travelzoo members are travel enthusiasts. Finally, slide 15 provides an overview of what management and our global team are focused on. We want to reach and surpass pre-pandemic number of members and accelerate revenue growth, utilize higher operating margins to significantly increase EPS, grow Jack's Flight Club's profitable subscription revenue, and launch Travelzoo META. At this point, I'd like to turn over to Arveena.
Hi, everyone. For today, I would like to refer you to the update that we provided on March 22nd. As soon as there are important new developments, we will issue a press release. I'm handing over to the operator for questions for Holger, Lijun, and me.
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 star followed by one on your touch-tone phones. In the interest of time, we ask that you please limit yourself to one question and one follow-up question. Thank you. Our first question comes from Michael Kupinski from Noble Capital Markets. Please go ahead. Your line is open.
Well, thank you. Congratulations on your strong quarter, first of all. I have a couple of questions. Can you talk a little bit about the trends in Europe, which appears to be lagging that of the recovery in North America? What are the dynamics that you're seeing there in that region?
Hi, Michael. Yes, in Q4, we saw the same. Europe was lagging a little bit. It's still the case. We have a feeling that in Q2, this will change, and we will finally see also growth in Europe. It just looks like Europe always took six, nine months longer in all the trends coming out of the pandemic. Behavior is not significantly different. It's just a bit delayed.
Gotcha. In terms of I see that your cash position now has increased and your merchant liabilities have come down. Can you just talk a little bit about the pace of the voucher redemptions and what you foresee in terms of the liability on that standpoint? It sounds like you're at a position now where you're building cash and just wanna check on what your outlook might be there.
Yes. When we did a cash protection last year, we forecasted our cash balance will reach the lowest at the end of the fourth quarter, 2022. That's exactly what happened. Now it's going up again. We believe it will continue. Reason is, as you pointed out, most of the vouchers that we sold at the beginning of the pandemic, 2020, 2021, 2022, most of them have expired. They have been redeemed. The number of vouchers that are outstanding, you can see that in the merchant payables is continuously decreasing. From here on, we expect the cash balance to continue to improve, and we're happy that our working capital, net working capital is also improving. It's a very good trend.
If I could just have one quick follow-up. What are the uses of cash at this point? Can you talk a little bit about capital allocation?
What you don't really see that much in the numbers is that in Q1, we actually used the increased profitability to invest more in member acquisition. In particular, our goal is to reach the number of members, as I said, the members that we had before the pandemic, as quickly as possible and surpass that. In Q1, that was the case. Actually, in Q1, for the first time in three years, the total number of members went up quarter-over-quarter if we disregard members that we acquired from another business that has been struggling. That's 1 area where we are investing more, and we will continue to invest more because we want to bring member growth back, as this is a, you know, the best basis for future growth.
Of course, we're also investing in initiatives like META. We investing Jack's Flight Club, but these are very controlled investments. Last but not least, we also have still a share repurchase program that was approved last year that at some point of time we're looking to complete.
Gotcha. Thank you.
Our next question comes from Jim Goss from Barrington Research. Please go ahead. Your line is open.
Hi, Jim.
All right. Thank you. Hi. Hi, Holger. You know, it's good to see the margins continuing to improve. That seemed to be the safest coming out of the pandemic. Does seem that the subscriber base has been somewhat flattish, and I'm wondering if you could outline what plans you might have to try to kick those numbers a bit higher. Is that possible, or have you penetrated a lot of the subscriber base you think would fall into the category of the travel enthusiast, affluent, active, et cetera? Are there ways to get those numbers higher and benefit the margins that much more?
Yes, absolutely. That's one of our priorities, as I stated, Jim. We actually started seeing progress in Q1. The member number increased quarter-over-quarter for the first time. We invested the most in Q1 2023 that we have invested in the last three years. In spite of that, we were still able to significantly improve pro-profitability. That's the plan. That was our plan for the last year. That's our plan going forward, and everything is going according exactly to this plan. It's a good time to bring more travel enthusiasts to our community because it's still 2023, still looks like a strong year where people want to travel. They wanna see new destinations. You heard 87% of our members want to see new places. They are open to going somewhere new.
We are sometimes even surprised when we speak about new destinations to our members, like places like Nepal or Sri Lanka, how many of the members are actually responding to that and are interested in that. Beyond that, we will also start testing additional formats to acquire members. In particular, some of the areas we will start experimenting with is video formats. Yes, 2023, our plan is to increase the member base, and as soon as possible. We are about 900,000 behind the peak we had before the pandemic. As you know, 2020 ' 2021, it didn't grow, but now we want to bring it back, and I think we will probably reach that in the next few quarters.
Well, in that regard, are there specific ways you can use to increase your visibility to create awareness of Travelzoo and what it offers? Are there certain marketing methods you're using for that purpose?
What's driving, what's of course driving interest in Travelzoo are the offers that we have, so that's what brings members to us.
Yeah.
Problem is the offers are so good that often people think they are not real. They are maybe too good to be true. What we are working on is how do we actually leverage our existing members, and those are our biggest fans. When we speak with existing members, particularly those who use us a lot, they are true fans of Travelzoo, and how can we use their experience and their year-long knowledge of Travelzoo to build the trust to new members that our offers are indeed not only just very good in terms of price, but they are actually very good experience. They don't have to worry. That they are not too good to be true, they are actually true.
That's an important message that we need to bring across more.
Okay. Just one last one. Regarding the catch-up in Europe that's taking place. I'm wondering what the ultimate balance between North America and Europe might be from your point of view.
I would say in the next two years, it will go back to the same ratio that we saw before the pandemic in 2019 and the first quarter of 2020.
Okay. Thank you very much.
Great. Thanks, Jim.
Our next question comes from Steve Silver from Argus Research. Please go ahead. Your line is open.
Thank you, operator, and congratulations to the team on the improving balance sheet. It's working capital has not seen these levels in quite some time, so it's really great to see. Most of my questions have been answered, but I guess one, Holger, in the press release, it mentions the expectation that licensing revenue would be expected to increase. To date, the licensing revenue has been a modest revenue contributor. Just trying to get a sense as to whether there's anything you're seeing in terms of activity in the licensing regions that gives you the confidence that revenues will move somewhat meaningfully.
just trying to get your sense as to, even if it wouldn't be a major contributor to Travelzoo's revenues, just trying to get some thoughts around the activity that the licensee might be seeing in that region. Thanks.
These relationships are actually very important beyond, let me just briefly point out they are really important beyond the, you know, revenue they generate for us, which is, as you say, not significant right now. These teams, particularly for example, the team that we have in Southeast Asia or Australia, they are working to source offers, exclusive offers for our members in North America and Europe. Some of these offers in the pandemic, particular examples are Maldives, Bali, Singapore, Thailand. These offers have been very, very well received. That's an important part of these relationships as well. Look, these licensees were dealing with the same situation as we did ourselves in North America and Europe. The pandemic came, they need to resume member growth.
Some of the members had not heard from us in a while because we stopped publishing offers to them, or the licensees resumed publishing offers to them only recently. It just takes a little bit of time to get these businesses back in growth mode. They are important relationships and, you know, the same way how they source offers for members in Europe and North America, they also present to them the offers that we source outside of their territories for their members. It's a good relationship, and we believe particularly, and we see it in the numbers and the improved operating margin for the business as a whole, operating these regions as licensed businesses rather than company-owned, so to speak, is much more attractive for us.
We are looking to see if there are some other markets or countries or regions where we can replicate that model.
Great. Thanks to the caller. Congratulations again.
We have no further questions in queue. I'll turn the call back over to Mr. Holger Bartel.
Great. Thank you everyone for dialing in 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 now disconnect your lines at this time. Have a nice day.