What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-04 · 132 added, 130 removed, 291 unchanged (47% of the section changed)

28 unchanged sentences

In January 2020, Travelzoo acquired Jack’s Flight Club, which operates Jack’s Flight Club , a subscription service that provides members with information about exceptional airfares.

As of June 30, 2021, Jack’s Flight Club had 1.7 million subscribers.

Jack’s Flight Club’s revenues are generated by subscription fees paid by members.

As of September 30, 2021, Jack’s Flight Club had 1.7 million subscribers.

Jack’s Flight Club’s revenues are generated by subsc ription fees paid by members.

In June 2020, the Company renegotiated certain aspects of that certain SPA with the Sellers and reached a settlement for the outstanding Promissory Notes, dated as of January 13, 2020, by and between Travelzoo and each Seller (the “Promissory Notes”).

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Since the second quarter of 2020, the Company expanded its vouchers refund policy in order to entice customers given the current economic climate to fully refundable until the voucher expires or is redeemed by the customer.

The Company now offers fully refundable refunds for vouchers that have not been redeemed or expired.

The expiration dates of vouchers range between April 2021 through June 2023.

The Company estimated the refund rese rve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds.

As of June 30, 2021, the Company had approximately $20.5 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $3.7 million for these unredeemed vouchers as of June 30, 2021 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet.

The Company has recorded Merchant Payables of $82.2 million as of June 30, 2021 related to unredeemed vouchers.

The Company now offers full refunds for vouchers that have not been redeemed or expired .

The expiration dates of vouchers range between October 2021 through December 2023.

The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds.

As of September 30, 2021, the Company had approximately $18.3 million of unredeemed vouchers that had been sold during 2020 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $3.1 million for these unredeemed vouchers as of September 30, 2021 which is recorded as a reduction of revenues and is reflected as a current liability in Accrued expenses and other on the consolidated balance sheet.

The Company has recorded Merchant Payables of $73.2 million as of September 30, 2021 related to unredeemed vouchers.

Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers.

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Trends in Our Business

supply of hotels offered at competitive rates and our ability to develop and launch new products.

Our ability to generate revenues is also dependent on trends impacting the travel industry more broadly.

Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates, our ability to develop and launch new products and our ability to continue to service our members without interruption.

Our ability to generate revenues is also dependent on trends impacting the travel industry and online advertising businesses more broadly.

Our current revenue model primarily depends on advertising fees paid primarily by travel, entertainment and local businesses.

3 unchanged sentences

In addition, we have been impacted and expect to continue to be impacted by internal factors such as introduction of new technologies and advertising products, hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire.

We also have been impacted and expect to continue to be impacted by external factors, such as the global pandemic, which decrease the demand for travel and entertainment and increasing cybersecurity attacks due to increased dependence on digital technologies.

We also could be indirectly impacted by climate change and related legislation to the extent such legislation impacts the businesses of our advertisers such as airlines, which have come under increasing scrutiny for their carbon footprints.

We also have been impacted and expect to continue to be impacted by external factors, such as the global pandemic, which decrease the demand for travel and entertainment and increasing cybersecurity risks due to increased dependence on digital technologies.

We also could be indirectly impacted by climate change and related legislation to the extent such legislation impacts the businesses of our advertisers such as airlines and cruise ship operators, which have come under increasing scrutiny for their carbon footprints.

Additionally, existing advertisers may shift from one advertising service (e.g.

24 unchanged sentences

Some of the fluctuations may be significant and may have a material impact on our results of operations.

We do not know that our sales and marketing expenses as a percentage of revenue will be in future periods.

We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods.

Increased competition in our industry may require us to increase advertising for our brand and for our products.

1 unchanged sentence

One significant factor that impacts our advertising expenses is the average cost per acquisition of a new member.

Increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a

percentage of revenue.

Increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue.

We believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys, our ability to manage our member acquisition efforts successfully, the regions we choose to acquire new members and the relative costs for that region, and the degree of competition in our industry.

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While the Company has already implemented a policy governing employees returning to the office voluntarily (in jurisdictions where they are permitted to do so), which includes health, safety and cleaning protocols, the Board and management are continually evaluating the best timeframe for employees’ official return to the offices, including implementing a phased return and ongoing remote working arrangements, and will determine when an official return will be safe for employees based on government regulations and guidance in the applicable jurisdictions.

Other than the PPP Loans, of which one was partially forgiven as of June 30, 2021, the Company does not have any outstanding debt and does not anticipate needing to enter into any debt arrangements or raise any capital, publicly or privately, to support its operations and liquidity in the ordinary course of business.

The Company's PPP loans were forgiven as of September 30, 2021.

The Company does not have any outstanding debt and does not anticipate needing to enter into any debt arrangements or raise any capital, publicly or privately, to support its operations and liquidity in the ordinary course of business.

The key elements of our growth strategy include building a travel and lifestyle brand with a large, high-quality user base and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage by consumers and toward fully refundable travel deals given the uncertainty of the global pandemic.

8 unchanged sentences

The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

20 unchanged sentences

Three Months Ended

September 30,

North America

25 unchanged sentences

Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

13 unchanged sentences

Travelzoo North America

North America revenues increased $9.8 million for the three months ended June 30, 2021 from the three months ended June 30, 2020.

North America revenues increased $520,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020.

This increase was primarily due to $372,000 increase in Travel revenues and $148,000 increase in Local revenues.

We have seen improvement in our business and a trend of revenue recovery compared to the global pandemic time in 2020.

The increase in Travel revenue of $372,000 was primarily due to $3.5 million increase as a result of higher revenues from Top 20 and Newsflash and $354,000 increase in hotel commission, offset partially by $3.6 million decrease in Getaways vouchers due to decrease in number of vouchers sold.

The increase in Local revenues of $148,000 was primarily due to the increase in number of Local Deals vouchers sold.

North America revenues increased $7.4 million for the nine months ended September 30, 2021 from the nine months ended September 30, 2020.

This increase was primarily due to $7.4 million increase in Travel revenues and $56,000 increase in Local revenues.

We have seen continued improvement in our business and a trend of revenue recovery since the global pandemic in 2020.

The increase in Travel revenue of $7.4 million was primarily due to $3.6 million increase as a result of higher revenues from Top 20 and Newsflash, $2.9 million increase in Getaways vouchers due to increase in number of vouchers sold, and $1.0 million increase in hotel commission.

The increase in Local revenues of $56,000 was primarily due to the increase in number of Local Deals vouchers sold.

North America revenues increased $6.9 million for the six months ended June 30, 2021 from the six months ended June 30, 2020.

This increase was primarily due to $7.0 million increase in Travel revenues and $92,000 decrease in Local revenues.

The increase in Travel revenue of $7.0 million was primarily due to $6.5 million increase due to in number of Getaways vouchers sold.

The decrease in Local revenues of $92,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Travelzoo Europe

Europe revenues increased $2.4 million for the three months ended June 30, 2021 from the three months ended June 30, 2020.

The increase was primarily due to $1.6 million increase in Travel revenues and $352,000 increase in Local revenues and $426,000 positive impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $1.6 million was primarily due to the increase in number of Getaways vouchers sold.

Europe revenues decreased $992,000 for the six months ended June 30, 2021 from the six months ended June 30, 2020.

The decrease was primarily due to $1.6 million decrease in Travel revenues and $102,000 decrease in Local revenues, offset partially by $702,000 positive impact from foreign currency movements relative to the U.S.

The decrease in Travel revenue of $1.6 million was primarily due to $2.5 million decrease as a result of lower revenues from Top 20 and Newsflash and $785,000 decrease in our website advertisements, offset partially by $2.4 million increase in Getaways vouchers due to increase in number of vouchers sold.

Europe revenues increased $1.6 million for the three months ended September 30, 2021 from the three months ended September 30, 2020.

The increase was primarily due to $1.2 million increase in Travel revenues, $219,000 increase in Local revenues and $202,000 positive impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $1.2 million was primarily due to $639,000 increase in Getaways vouchers due to increase in number of vouchers sold and $566,000 increase as a result of higher revenues from Top 20 and Newsflash.

The increase in Local revenues of $219,000 was primarily due to the increase in number of Local Deals vouchers sold.

Europe revenues increased $580,000 for the nine months ended September 30, 2021 from the nine months ended September 30, 2020.

The increase was primarily due to $117,000 increase in Local revenues and $904,000 positive impact from foreign currency movements relative to the U.S.

dollar, offset partially by $441,000 decrease in Travel revenues.

The decrease in Travel revenue of $441,000 was primarily due to decrease as a result of lower revenues from Top 20 and Newsflash.

The increase in Local revenues of $117,000 was primarily due to the increase in number of Local Deals vouchers sold.

Jack’s Flight Club

1 unchanged sentence

Jack’s Flight Club's premium members pay subscription fees quarterly, semi-annually or annually to receive emails or app notifications of flight deals.

Jack’s Flight Club’s revenue decreased by $85,000 for three months ended June 30, 2021 from the three months ended June 30, 2020 due to the decrease of premium members.

Jack’s Flight Club’s revenue was $1.7 million for the six months ended June 30, 2021 and was $1.6 million for the period between January 13, 2020 through June 30, 2020.

The revenue for 2020 was negatively impacted by approximately $824,000 from January 13, 2020 through June 30, 2020 due to the acquisition revenue adjustment related to the deferred revenue sold prior to acquisition.

Jack’s Flight Club’s revenue decreased by $191,000 for three months ended September 30, 2021 from the three months ended September 30, 2020 due to the decrease of premium members.

Jack’s Flight Club’s revenue was $2.5 million for the nine months ended September 30, 2021 and was $2.6 million for the period between January 13, 2020 through September 30, 2020.

The revenue for 2020 was negatively impacted by approximately $824,000 from January 13, 2020 through September 30, 2020 due to the acquisition revenue adjustment related to the deferred revenue sold prior to acquisition.

Cost of Revenues

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network , amortization of capitalized website development costs, credit card fees, certain estimated refunds to members and customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with network operations and customer service staff.

Cost of revenues was $2.5 million and $2.1 million, respectively for the three months ended June 30, 2021 and 2020.

Cost of revenues was $5.5 million and $4.8 million, respectively, for the six months ended June 30, 2021 and 2020.

Cost of revenues for Travelzoo North America and Travelzoo Europe was $2.5 million and $2.0 million, respectively, for the three months ended June 30, 2021 and 2020.

The increase of $416,000 was primarily due to $191,000 increase in expenses from third-party partners of the Travelzoo Network and $190,000 increase in professional service expenses.

Cost of revenue for Jack’s Flight Club decreased to $66,000 from $101,000, respectively, for the three months ended June 30, 2021 and 2020.

The decrease of $35,000 was primarily due the decrease in credit card fees.

Cost of revenues for Travelzoo North America and Travelzoo Europe was $5.4 million and $4.6 million, respectively, for the six months ended June 30, 2021 and 2020.

The increase of $738,000 was primarily due to $522,000 increase in credit card fee as a result of increased voucher sales and $406,000 increase in professional service expenses.

Cost of revenue for Jack’s Flight Club decreased to $156,000 for the six months ended June 30, 2021 from $198,000 for the period between January 13, 2020 through June 30, 2020.

The decrease of $42,000 was primarily due the decrease in credit card fees.

Cost of revenues was $3.0 million and $2.9 million, respectively for the three months ended September 30, 2021 and 2020.

Cost of revenues was $8.5 million and $7.8 million, respectively, f or the nine months ended September 30, 2021 and 2020.

Cost of revenues for Travelzoo North America and Travelzoo Europe w as $2.9 million and $2.8 million, respectively, for the three months ended September 30, 2021 and 2020.

The increase of $73,000 was primarily due to $650,000 increase in software license expenses and $211,000 increase in expenses from third-party partners of the Travelzoo Network, offset partially by $688,000 decrease in credit card fees.

Cost of revenue for Jack’s Flight Club decreased slightly to $71,000 from $76,000 for the three months ended September 30, 2021 and 2020, respectively.

Cost of revenues for Travelzoo North America and Travelzoo Europe was $8.3 million and $7.5 million, respectively, for the nine months ended September 30, 2021 and 2020.

The increase of $811,000 was primarily due to increase in software license expenses.

Cost of revenue for Jack’s Flight Club decreased to $227,000 for the nine months ended September 30, 2021 from $274,000 for the period between January 13, 2020 through September 30, 2020.

The decrease of $47,000 was primarily due the decrease in payment processing fees.

Operating Expenses

1 unchanged sentence

Sales and marketing expenses consist primarily of advertising and promotional expenses, salary expenses associated with sales, marketing and production employees, expenses related to our participation in industry conferences, public relations expenses and facilities costs.

Sales and marketing expenses were $7.3 million and $4.3 million for the three months ended June 30, 2021 and 2020, respectively.

Sales and marketing expenses were $14.1 million and $17.4 million for the six months ended June 30, 2021 and 2020, respectively.

Advertising expenses consist primarily of online advertising, which we refer to as traffic acquisition cost and member acquisition costs.

For the three months ended June 30, 2021, advertising expenses accounted for 12% of the total sales and marketing expenses.

We did not incur any advertising expenses for the three months ended June 30, 2020.

For the six months ended June 30, 2021 and 2020, advertising expenses accounted for 8% and 14%, respectively, of the total sales and marketing expenses.

Sales and marketing expenses were $7.7 million and $6.9 million for the three months ended September 30, 2021 and 2020, respectively.

Sales and marketing expenses were $21.8 million and $24.3 million for the nine months ended September 30, 2021 and 2020, respectively .

Advertising expenses consis t primarily of online advertising which we refer to as traffic acquisition cost and member acquisition costs.

For the three months ended September 30, 2021 and 2020, advertising expenses accounted for 17% and 1%, respectively, of the total sales and marketing expenses.

For the nine months ended September 30, 2021 and 2020, advertising expenses accounted for 11% and 10%, respectively, of the total sales and marketing expenses.

The goal of our advertising was to acquire new members to our email products, increase the traffic to our websites, increase brand awareness and increase our audience through mobile and social media channels.

Sales and marketing expenses for Travelzoo North America and Travelzoo Europe was $7.2 million and $4.2 million, respectively, for the three months ended June 30, 2021 and 2020.

The increase of $3.0 million was primarily due to $1.6 million increase for headcount related expenses, $820,000 increase in member acquisition costs and $227,000 increase in marketing expenses.

Sales and marketing expenses for Jack's Flight Club increased to $153,000 for the three months ended June 30, 2021 from $62,000 for the three months ended June 30, 2020 due to increase in headcount related expenses.

Sales and marketing expenses for Travelzoo North America and Travelzoo Europe was $13.9 million and $17.1 million, respectively, for the six months ended June 30, 2021 and 2020.

The decrease of $3.2 million was primarily due to $732,000 decrease in marketing expenses, $674,000 decrease in member acquisition costs, $313,000 decrease in travel expenses and $265,000 decrease in software license expenses.

Sales and marketing expenses for Jack's Flight Club decreased to $265,000 for

the six months ended June 30, 2021 from $327,000 for the period between January 13, 2020 through June 30, 2020 primarily due to decrease in advertising expenses.

Sales and marketing expenses for Travelzoo North America and Travelzoo Europe was $7.6 million and $6.8 million, respectively, for the three months ended September 30, 2021 and 2020.

The increase of $792,000 was primarily due to increase in member acquisition costs.

Sales and marketing expenses for Jack's Flight Club decreased to $144,000 for the three months ended September 30, 2021 from $156,000 for the three months ended September 30, 2020 due to decrease in advertising and marketing expenses.

Sales and marketing expenses for Travelzoo North America and Travelzoo Europe was $21.4 million and $23.8 million, respectively, for the nine months ended September 30, 2021 and 2020.

The decrease of $2.4 million was primarily due to $1.2 million decrease in facilities costs, $438,000 decrease in marketing expenses, $345,000 decrease in headcount related expenses and $324,000 decrease in software license expenses.

Sales and marketing expenses for Jack's Flight Club decreased to $409,000 for the nine months ended September 30, 2021 from $483,000 for the period between January 13, 2020 through September 30, 2020 primarily due to decrease in advertising and marketing expenses.

Product Development

Product development expenses consist primarily of compensation for software development staff, fees for professional services, software maintenance, amortization, and facilities costs.

Product development expenses were $685,000 and $566,000 for the three months ended June 30, 2021 and 2020, respectively.

Product development expenses were $1.4 million and $2.0 million for the six months ended June 30, 2021 and 2020, respectively.

Jack's Flight Club did not incur product development expenses for the three and six months ended June 30, 2021 and 2020.

Product development expenses increased $119,000 for the three months ended June 30, 2021 from the three months ended June 30, 2020 primarily due to $81,000 increase in professional service fees.

Product development expenses decreased $626,000 for the six months ended June 30, 2021 from the six months ended June 30, 2020 primarily due to $435,000 decrease for headcount related expenses and $145,000 decrease in professional service fee.

Product development expenses were $684,000 and $592,000 for the three months ended September 30, 2021 and 2020, respectively.

Product development expenses were $2.1 million and $2.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Jack's Flight Club did not incur product development expenses for the three and nine months ended September 30, 2021 and 2020.

Product development expenses increased $92,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020 primarily due to increase in professional service fees.

Product development expenses decreased $534,000 for the nine months ended September 30, 2021 from the nine months ended September 30, 2020 primarily due to decrease in headcount related expenses.

General and Administrative

General and administrative expenses consist primarily of compensation for administrative and executive staff, bad debt expense, professional service expenses for audit and tax preparation, legal expenses, amortization of intangible assets, general office expense and facilities costs.

General and administrative expenses were $5.1 million and $6.6 million for the three months ended June 30, 2021 and 2020, respectively.

General and administrative expenses were $9.6 million and $12.2 million for the six months ended June 30, 2021 and 2020, respectively.

General and administrative expenses for Travelzoo North America and Travelzoo Europe was $4.6 million and $5.6 million, respectively, for the three months ended June 30, 2021 and 2020.

The decrease of $1.0 million was primarily due to the $3.2 million decrease in stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and repricing of certain previously granted options, offset partially by $1.5 million gain relating to Jack’s Flight Club's promissory note forgiveness in the three months ended June 30, 2020 and $874,000 increase for headcount related expenses.

General and administrative expenses for Jack’s Flight Club was $471,000 and $1.0 million, respectively, for the three months ended June 30, 2021 and 2020.

The decrease of $559,000 was primarily due to the $448,000 additional payment the Company reached with Jack’s Flight Club in 2020 on the settlement agreement.

General and administrative expenses for Travelzoo North America and Travelzoo Europe was $8.4 million and $10.7 million, respectively, for the six months ended June 30, 2021 and 2020.

The decrease of $2.3 million was primarily due to the $2.3 million decrease in stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and repricing of certain previously granted options and $1.8 million decrease in bad debt expense, offset partially by $1.5 million gain relating to Jack’s Flight Club's promissory note forgiveness in the six months ended June 30, 2020.

General and administrative expenses for Jack’s Flight Club was $1.3 million for the six months ended June 30, 2021 and $1.4 million for the period between January 13, 2020 through June 30, 2020.

The decrease of $180,000 was primarily due to the $448,000 additional payment the Company reached with Jack’s Flight Club in 2020 on the settlement agreement, offset partially by the $230,000 of indirect tax expenses Jack’s Flight Club recorded in the six months ended June 30, 2021.

General and administrative expenses were $4.6 million and $4.5 million for the three months ended September 30, 2021 and 2020, respectively.

General and administrative expenses were $14.2 million and $16.7 million for the nine months ended September 30, 2021 and 2020, respectively.

General and administrative expenses for Travelzoo North America and Travelzoo Europe was $4.0 million for each of the three months ended September 30, 2021 and 2020.

The headcount related expenses increase of $238,000 was offset by the bad debt expenses decrease of $212,000 in the three months ended September 30, 2021.

General and administrative expenses for Jack’s Flight Club was $524,000 and $505,000, respectively, for the three months ended September 30, 2021 and 2020.

The increase of $19,000 was primarily due to the headcount related expenses.

General and administrative expenses for Travelzoo North America and Travelzoo Europe was $12.4 million and $14.8 million, respectively, for the nine months ended September 30, 2021 and 2020.

The decrease of $2.4 million was primarily due to $2.0 million decrease in bad debt expense and $1.8 million decrease in headcount related expenses which mainly related to the decrease of stock-based compensation expense as the result of the shareholder's approval in May 2020 of newly granted options and repricing of certain previously granted options, offset partially by $1.5 million gain relating to Jack’s Flight Club's promissory note forgiveness in the nine months ended September 30, 2020.

General and administrative expenses for Jack’s Flight Club was $1.8 million for the nine months ended September 30, 2021 and $2.0 million for the period between January 13, 2020 through September 30, 2020.

The decrease of $161,000 was primarily due to the $448,000 additional payment the Company reached with Jack’s Flight Club in 2020 on the settlement agreement, offset partially by the $230,000 of indirect tax expenses Jack’s Flight Club recorded in the nine months ended September 30, 2021.

Impairment of intangible assets and goodwill

3 unchanged sentences

Other Income (Loss)

Other income (loss) consisted primarily of foreign exchange transactions gains and losses, our share of investment gains and losses and amortization of basis differences, sublease income, interest income earned on cash, cash equivalents and restricted cash as well as interest expense.

Other income (loss) was $684,000 and ($179,000), respectively, for the three months ended June 30, 2021 and 2020.

Other income (loss) was $518,000 and ($185,000), respectively, for the six months ended June 30, 2021 and 2020.

The increase for the three and six months ended June 30, 2021 from three and six months ended June 30, 2020 was due to the $429,000 gain recorded in the second quarter of 2021 as the result of partial PPP loan forgiveness.

Our income is generally taxed in the U.S., Canada and U.K.

Other income (loss) consisted primarily of foreign exchange transactions gains and losses, our share of investment gains and losses and amortization of basis differences, sublease income, gains on extinguishment of PPP loans, interest income earned on cash, cash equivalents and restricted cash as well as interest expense.

Other income (loss) was $3.3 million and ($37,000), respectively, for the three months ended September 30, 2021 and 2020.

Other income (loss) was $3.9 million and ($222,000), respectively, for the nine months ended September 30, 2021 and 2020.

The increase for the three months ended September 30, 2021 from three months ended September 30, 2020 was due to the $3.2 million gain recorded as the result of the PPP loan forgiveness in the three months ended September 30, 2021.

The increase for the nine months ended September 30, 2021 from the nine months ended September 30, 2020 was due to the $3.6 million gain recorded as the result of PPP loan forgiveness in the nine months of September 30, 2021.

Our income is general ly taxed in the U.S., Canada and U.K.

Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income.

Income tax expense (benefit) was $1.1 million and ($1.3 million), respectively, for the three months ended June 30, 2021 and 2020.

Our effective tax rate was 27% and 19%, respectively, for the three months ended June 30, 2021 and 2020.

Income tax expense (benefit) was $1.9 million and ($1.8 million), respectively, for the six months ended June 30, 2021 and 2020.

Our effective tax rate was 58% and 15%, respectively, for the three months ended June 30, 2021 and 2020 respectively.

Our effective tax rate increased for the three and six months ended June 30, 2021 from three and six months ended June 30, 2020 primarily due to changes in deferred tax assets from limitations on deductible stock-based compensation .

Income tax expense (benefit) was $233,000 and ($244,000), respectively, for the three months ended September 30, 2021 and 2020.

Our effective tax rate was 8% and 20%, respectively, for the three months ended September 30, 2021 and 2020.

Income tax expense (benefit) was $2.1 million and ($2.1 million), respectively, for the nine months ended September 30, 2021 and 2020.

Our effective tax rate was 33% and 15%, respectively, for the three months ended September 30, 2021 and 2020 respectively.

Our effective tax rate decreased for the three months ended September 30, 2021 from three months ended September 30, 2020 primarily due to PPP loan forgiveness income generated in the three months ended September 30, 2021 that is exempt from tax .

Our effective tax rate increased for the nine months ended September 30, 2021 from nine months ended September 30, 2020 primarily due to changes in deferred tax assets from limitations on deductible stock-based compensation, offset by PPP Loan forgiveness income exempt from tax .

We expect our effective tax rate to fluctuate in future periods depending on the geographic mix of our worldwide income or losses mainly incurred by our operations, statutory tax rate changes that may occur, existing or new uncertain tax matters that may arise and require changes in tax reserves, the use of accumulated losses to offset current taxable income and the need for valuation allowances on certain tax assets, if any.

1 unchanged sentence

Travelzoo North America

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

3 unchanged sentences

Operating profit (loss) as a % of revenue (9.5) % (7.6) % 7.9 % (24.5) %

North America revenues increased by $9.8 million for the three months ended June 30, 2021 from the three months ended June 30, 2020 (see “Revenues” above).

North America expenses increased by $1.5 million for the three months ended June 30, 2021 from the three months ended June 30, 2020.

The increase was primarily due to $1.5 million gain relating to Jack’s Flight Club’s promissory note forgiveness in 2020, $1.3 million increase for headcount related expenses, $752,000 increase in member acquisition costs, $498,000 increase in professional service fees, $197,000 increase in expenses from third-party partners of the Travelzoo Network and $181,000 increase in marketing expenses, offset partially be $3.2 million decrease in stock-based compensation expense as the result of the shareholders’ approval in May 2020 of newly granted options and increases and repricing of certain previously granted options.

North America revenues increased by $6.9 million for the six months ended June 30, 2021 from the six months ended June 30, 2020 (see “Revenues” above).

North America expenses decreased by $2.3 million for the six months ended June 30, 2021 from the six months ended June 30, 2020.

North America revenues increased by $520,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020 (see “Revenues” above).

North America expenses increased by $742,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020.

The increase was primarily due to $827,000 increase in member acquisition costs and $561,000 increase in software license expenses, offset partially by $609,000 decrease in credit card fees.

North America revenues increased by $7.4 million for the nine months ended September 30, 2021 from the nine months ended September 30, 2020 (see “Revenues” above).

North America expenses decreased by $1.6 million for the nine months ended September 30, 2021 from the nine months ended September 30, 2020.

The decrease was primarily due to $2.5 million decrease in stock-based compensation expense as the result of the shareholders’ approval in May 2020 of newly granted options and repricing of certain previously granted options, $1.0 million decrease for headcount related expenses and $524,000 decrease in bad debt expenses, offset partially by $1.5 million gain relating to Jack’s Flight Club’s promissory note forgiveness in 2020 and $883,000 increase in expenses from third-party partners of the Travelzoo Network for the nine months ended September 30, 2021.

Travelzoo Europe

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

3 unchanged sentences

Operating profit (loss) as a % of revenue 11.5 % (20.7) % (2.5) % (30.3) %

Europe revenues increased by $2.4 million for the three months ended June 30, 2021 from the three months ended June 30, 2020 (see “Revenues” above).

Europe expenses increased by $921,000 for the three months ended June 30, 2021 from the three months ended June 30, 2020.

The increase was primarily due to $1.3 million increase for headcount related expenses, offset partially by $397,000 decrease in bad debt expenses.

Europe revenues decreased by $992,000 for the six months ended June 30, 2021 from the six months ended June 30, 2020 (see “Revenues” above).

Europe expenses decreased by $3.1 million for the six months ended June 30, 2021 from the six months ended June 30, 2020.

The decrease was primarily due to $1.3 million decrease in bad debt expenses, $730,000 decrease in member acquisition costs, $605,000 decrease in marketing expenses and $256,000 decrease in office expenses,

Europe revenues increased by $1.6 million for the three months ended September 30, 2021 from the three months ended September 30, 2020 (see “Revenues” above).

Europe expenses increased by $215,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020.

The increase was primarily due to increase in member acquisition costs.

Europe revenues increased by $580,000 for the nine months ended September 30, 2021 from the nine months ended September 30, 2020 (see “Revenues” above).

Europe expenses decreased by $2.8 million for the nine months ended September 30, 2021 from the nine months ended September 30, 2020.

The decrease was primarily due to $1.5 million decrease in bad debt expenses, $476,000 decrease in marketing expenses and $457,000 decrease in member acquisition costs.

Foreign currency movements relative to the U.S.

dollar negatively impacted our local currency income from our operations in Europe by approximately $20,000 and $79,000 for the three and six months ended June 30, 2021, respectively.

dollar positively impacted our local currency income from our operations in Europe by approximately $64,000 and $4,000 for the three and nine months ended September 30, 2021, respectively.

Foreign currency movements relative to the U.S.

dollar positively impacted our local currency income from our operations in Europe by approximately $49,000 and $79,000 for the three and six months ended June 30, 2020, respectively.

dollar negatively impacted our local currency income from our operations in Europe by approximately $33,000 and $0 for the three and six months ended September 30, 2020, respectively.

Jack ’ s Flight Club

Three Months Ended June 30, Six Months Ended June 30, January 13 through June 30

Three Months Ended September 30, Nine Months Ended September 30, January 13 through September 30,

2021 2020 2021 2020

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Operating profit (loss) as a % of revenue 7.2 % 25.3 % 4.6 % (115.2) %

Jack ’ s Flight Club revenues decreased by $85,000 for the three months ended June 30, 2021 from the three months ended June 30, 2020.

Jack ’ s Flight Club expenses decreased by $160,000 for the three months ended June 30, 2021 from the three months ended June 30, 2020.

The decrease was primarily due to the additional payment the Company reached with Jack’s Flight Club in 2020 on the settlement agreement.

Jack ’ s Flight Club revenues increased by $119,000 for the six months ended June 30, 2021 compared to the revenues from January 13, 2020 through June 30, 2020 (see “Revenues” above).

Jack ’ s Flight Club expenses decreased by $3.3 million for the three months ended June 30, 2021 compared to the period between January 13, 2020 through June 30, 2020 primarily due to the impairment of intangible assets and goodwill charges the Company recorded in the first quarter of 2020.

Jack ’ s Flight Club revenues decreased by $191,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020.

Jack ’ s Flight Club expenses slightly in creased by $2,000 for the three months ended September 30, 2021 from the three months ended September 30, 2020.

Jack ’ s Flight Club revenues decreased by $72,000 for the nine months ended September 30, 2021 compared to the revenues from January 13, 2020 through September 30, 2020 (see “Revenues” above).

Jack ’ s Flight Club expenses decreased by $3.2 million for the nine months ended September 30, 2021 compared to the period between January 13, 2020 through September 30, 2020 primarily due to the impairment of intangible assets and goodwill charges the Company recorded in the first quarter of 2020.

Liquidity and Capital Resources

As of June 30, 2021, we had $81.0 million in cash and cash equivalents, of which $38.3 million was held outside the U.S.

As of September 30, 2021, we had $65.2 million in cash and cash equivalents, of which $31.5 million was held outside the U.S.

in our foreign operations.

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Cash and cash equivalents increased $2.1 million from $63.1 million as of December 31, 2020 primarily by cash provided by operating activities offset by cash paid for taxes in net share settlement of stock option exercises and cash used to repurchase our common stocks.

As of June 30, 2021, we had one PPP loan outstanding of approximately $3.1 million.

On July 1, 2021, the principal and the interest of the outstanding PPP loan were forgiven.

As of June 30, 2021 , we had negative working capital of $12.7 million primarily due to an increase in merchants payables related to the sale of vouchers.

The payables to merchants are generally due upon redemption of the vouchers.

The vouchers have maturities that begin in July 2021 through December 2023, and we believe that redemption patterns may be delayed for international vouchers under the current environment.

Based on current projections of redemption activity, we expect that cash on hand as of June 30, 2021 will be sufficient to provide for working capital needs for at least the next twelve months.

However, if redemption activity is more accelerated, or if we are not able to remain profitable, we may need to obtain additional financing to meet our working capital needs in the future.

As of September 30, 2021 , the Company had merchant payables of $73.2 million related to the sale of vouchers.

In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, we classified all merchant payables as current.

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $18.0 million.

Payables to merchants are generally due upon redemption of vouchers.

The vouchers have maturities from October 2021 through December 2023.

Management believes that redemptions may be delayed for international vouchers in the current environment.

Based on current projections of redemption activity, we expect that cash on hand as of September 30, 2021 will be sufficient to provide for working capital needs for at least the next twelve months.

However, if redemption activity is more accelerated, if our business is not profitable, or if our planned targets for cash flows from operations are not met, we may need to obtain additional financing to meet our working capital needs in the future.

We believe that we could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to us, if at all.

The following table provides a summary of our cash flows from operating, investing and financing activities:

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

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Net cash provided by operating activities is net income (loss) adjusted for certain non-cash items and changes in assets and liabilities.

Net cash provided by operating activities for the six months ended June 30, 2021 was $22.0 million, which consisted of $18.2 million increase in cash from changes in operating assets and liabilities, $2.4 million in non-cash items and net income of $1.4 million.

The increase in cash from changes in operating assets and liabilities primarily consisted of $25.2 million increase in merchant payables, offset partially by $4.8 million increase in accounts receivable and $2.8 million increase in prepaid expenses and other.

Adjustments for non-cash items primarily consisted of $1.8 million of stock-based compensation.

Net cash provided by operating activities for the six months ended June 30, 2020 was $13.4 million, which consisted of $19.8 million increase in cash from changes in operating assets and liabilities and $7.7 million in non-cash items, offset by net loss of $14.0 million.

The increase in cash from changes in operating assets and liabilities primarily consisted of the $8.2 million increase in merchant payables and $6.2 million decrease in accounts receivable.

Adjustments for non-cash items primarily was consisted of $4.1 million of stock-based compensation, $2.9 million due to impairment of goodwill and intangible assets and $2.4 million of provision of loss on accounts receivable and other, offset partially by $1.5 million gain relating to Jack’s Flight Club's promissory notes forgiveness.

Cash paid for income tax, net of refunds received, during the six months ended June 30, 2021 and 2020 was $1.4 million and $482,000, respectively.

Net cash used in investing activities for the six months ended June 30, 2021 and 2020 was $84,000 and $1.3 million, respectively.

The cash used in investing activities for the six months ended June 30, 2021 was for purchases of property and equipment.

The cash used in investing activities for the six months ended June 30, 2020 was primarily due to the $1.0 million investment in Jack’s Flight Club acquisition less acquired cash of $321,000, $430,000 in other investments and $203,000 in purchases of property and equipment.

Net cash used in financing activities for the six months ended June 30, 2021 and 2020 was $4.8 million and $5.3 million, respectively.

The cash used in financing activities for the six months ended June 30, 2021 was primarily due to $3.1 million cash paid for taxes in net share settlement of stock option exercises and $1.6 million payment to repurchase common stock.

The cash used in financing activities for the six months ended June 30, 2020 was primarily due to the $7.8 million promissory note payment for Jack’s Flight Club stock purchase and $1.2 million to repurchase common stock, offset by $3.7 million proceeds from PPP loans.

Net cash provided by operating activities for the nine months ended September 30, 2021 was $9.3 million, which primarily consisted of $5.4 million increase in cash from changes in operating assets and liabilities, net income of $4.2 million and $344,000 decrease in non-cash items.

The increase in cash from changes in operating assets and liabilities primarily consisted of $16.5 million increase in merchant payables and $5.0 million increase in accounts payable, offset partially by $9.5 million increase in prepaid expenses and other, $3.8 million increase in accounts receivable and $2.0 million increase in prepaid income taxes.

Adjustments for non-cash items primarily consisted of $3.6 million gain on PPP notes payable forgiveness and $2.8 million of stock-based compensation

Net cash provided by operating activities for the nine months ended September 30, 2020 was $37.6 million, which consisted of $41.8 million increase in cash from changes in operating assets and liabilities and $11.0 million non-cash items, offset partially by net loss of $15.3 million.

The increase in cash from changes in operating assets and liabilities primarily consisted of the $33.2 million increase in accounts payable and $6.2 million decrease in accounts receivable.

Adjustments for non-cash items primarily was consisted of $5.2 million of stock-based compensation, $3.9 million of provision of loss on accounts receivable and other, $2.9 million impairment of goodwill and intangible assets and $1.8 million depreciation and amortization, offset partially by $1.7 million deferred income tax and $1.5 million gain relating to Jack Flight Club's promissory notes forgiveness.

Cash paid for income tax, net of refunds received, during the nine months ended September 30, 2021 and 2020 was $3.0 million and $1.2 million, respectively.

Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 was $24,000 and $1.4 million, respectively.

The cash used in investing activities for the nine months ended September 30, 2021 was for purchases of property and equipment.

The cash used in investing activities for the nine months ended September 30, 2020 was primarily due to the $1.0 million investment in Jack’s Flight Club acquisition less acquired cash of $321,000, $430,000 in other investments and $252,000 in purchases of property and equipment.

Net cash used in financing activities for the nine months ended September 30, 2021 and 2020 was $7.1 million and $5.3 million, respectively.

The cash used in financing activities for the nine months ended September 30, 2021 was primarily due to $5.4 million cash paid for taxes in net share settlement of stock option exercises and $1.6 million paid for common stock repurchase.

The cash used in financing activities for the nine months ended September 30, 2020 was primarily due to the $7.8 million promissory note payment for Jack’s Flight Club stock purchase and $1.2 million to repurchase common stock, offset by $3.7 million proceeds from PPP loans.

Although we have settled the states unclaimed property claims with all states, we may still receive inquiries from certain potential Netsurfers promotional shareholders that had not provided their state of residence to us by April 25, 2004.

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Litigation and claims against the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial condition.

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $1.2 million as of June 30, 2021.

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $1.3 million as of September 30, 2021.

Income Taxes” to the accompanying unaudited condensed consolidated financial statements for further information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis