What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-08 · 84 added, 154 removed, 269 unchanged (47% of the section changed)

13 unchanged sentences

For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals.

Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network , a network of third-party websites that list travel deals published by Travelzoo.

Travelzoo (the “Company” or "we") attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, web, social media and mobile applications.

Our insider deals and email newsletters are published by Travelzoo and its licensees worldwide.

Our publications and products include the Travelzoo website (travelzoo.com),, the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflash email alert service, and the Travelzoo Network.

Our Travelzoo website includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants.

In April 2018, we entered into an agreement with WeekenGO (“WeGo”), a start-up company in Germany.

WeGo uses new technology to promote vacation packages.

We originally invested $3.0 million in WeGo for a 25% ownership interest in April 2018.

In April 2019, the Company invested an additional $673,000 in WeGo and increased the Company's ownership interest to 26.6%.

On February 11, 2020, Travelzoo signed an amended investment agreement with WeGo and agreed to invest an additional $1.7 million to increase the Company's ownership interest to 33.7% if WeGo meets certain performance targets.

In connection with the Original Investment Agreement, WeGo agreed to spend approximately $2.1 million with the Company in marketing pursuant to an Insertion Order (the “Insertion Order”) and in connection with the Investment Agreement, WeGo agreed to spend an additional $1.8 million in marketing, once the additional payment was made by the Company (the “Second Insertion Order”).

In December 2020, the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $2.9 million, of which $213,000 was placed in escrow for one year.

As of the date of the transaction with trivago, WeGo had not achieved the necessary performance targets.

WeGo also agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order, equal to approximately $200,000.

The Company acquired the domain name and trademark “weekend.com” in 2005 and amortized this asset over five years.

In December 2020, the Company sold the domain name and trademark “weekend.com” to trivago in exchange for a payment of $822,000.

Summary of Significant Accounting Policies" to the accompanying consolidated financial statements for further information.

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 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”).

Acquisition" to the accompanying consolidated financial statements for further information.

In January 2022, the Company’s German branch of Travelzoo (Europe) Limited received the payment for approximately $1.2 million from German federal government for companies suffered Corona-related slump.

The Company recorded $1.2 million gain in Other income, net in the three months ended March 31, 2022.

The Company also received j ob retention related funding from Canada was approximately $68,000 and $168,000 for three months ended March 31, 2022 and 2021, respectively, and from European locations was approximately $0 and $20,000 for three months ended March 31, 2022 and 2021, respectively.

Those fundings were recorded against salary and related expenses.

The Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $2.9 million, of which $195,000 was placed in escrow for one year.

The Company received the full escrow payment in January 2022 and recorded the gain in Other income (loss), net for the three months ended March 31, 2022.

Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America.

18 unchanged sentences

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 expiration dates of vouchers range between April 2022 through December 2025 with the majority of vouchers expiring in 2022 and the remaining primarily expiring in 2023;

provided, that these expiration dates may sometimes be extended on a case-by-case basis.

The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach.

For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers.

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.

As of March 31, 2022, the Company had approximately $15.1 million of unredeemed vouchers that had been sold through December 31, 2021 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $3.8 million for these unredeemed vouchers as of March 31, 2022 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 $60.5 million as of March 31, 2022 related to unredeemed vouchers.

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

79 unchanged sentences

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.

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 Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Revenues 100.0 % 100.0 %

19 unchanged sentences

Three Months Ended

September 30,

North America

Total members (1) 16,663,000 18,113,000

Average cost per acquisition of a new member $ 4.81 N/A

Average cost per acquisition of a new member $ 1.92 $ 0.80

Revenue per member (2) $ 2.77 $ 2.41

3 unchanged sentences

Total members (1) 9,062,000 8,596,000

Average cost per acquisition of a new member $ 2.36 N/A

Average cost per acquisition of a new member $ 1.13 $ 1.67

Revenue per member (2) $ 2.83 $ 1.64

5 unchanged sentences

Total members (1) 27,460,000 28,352,000

Average cost per acquisition of a new member $ 3.81 N/A

Average cost per acquisition of a new member $ 1.25 $ 0.81

Revenue per member (2) $ 2.47 $ 1.77

8 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended

Travelzoo North America

12 unchanged sentences

Travelzoo North America

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.

North America revenues increased $1.9 million for the three months ended March 31, 2022 from the three months ended March 31, 2021.

This increase was primarily due to $2.1 million increase in Travel revenues offset by $183,000 decrease in Local revenues.

We have seen improvement in our business and a trend of revenue recovery compared to the global pandemic time in 2022.

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.

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.

The increase in Travel revenue of $2.1 million was primarily due to $4.7 million increase as a result of higher revenues from Top 20 and Newsflash and $295,000 increase in hotel commission, offset partially by $3.1 million decrease in Getaways vouchers due to decrease in number of vouchers sold.

The decrease in Local revenues of $183,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Travelzoo Europe

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.

Europe revenues increased $2.4 million for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $2.6 million increase in Travel revenues, $43,000 increase in Local revenues, offset partially by $313,000 negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $2.6 million was primarily due to $1.4 million increase as a result of higher revenues from Top 20 and Newsflash, $627,000 increase in Getaways vouchers due to increase in number of vouchers sold and $267,000 increase in hotel commission.

The increase in Local revenues of $43,000 was primarily due to the increase in number of Local Deals vouchers sold.

2 unchanged sentences

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 $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.

Jack’s Flight Club’s revenue decreased by $64,000 for three months ended March 31, 2022 from the three months ended March 31, 2021 due to the decrease of premium members.

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 staf f.

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.

Cost of revenues was $2.8 million and $3.0 million, respectively for the three months ended March 31, 2022 and 2021.

Cost of revenues decreased $186,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021 was primarily due to $447,000 decrease in credit card fees and $243,000 decrease in professional service costs, offset partially by $485,000 increase in software license costs.

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 $7.7 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 .

Sales and marketing expenses were $8.6 million and $6.8 million for the three months ended March 31, 2022 and 2021, 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.

For the three months ended March 31, 2022 and 2021, advertising expenses accounted for 18% and 6%, 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 $7.6 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.

Sales and marketing expenses increased $1.8 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 The increase was primarily due to $1.1 million increase in member acquisition costs, $390,000 increase in other marketing expenses and $195,000 increase in depreciation and amortization 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 $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.

Product development expenses were $453,000 and $683,000 for the three months ended March 31, 2022 and 2021, respectively.

Product development expenses decreased $230,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021 primarily due to decrease in facilities costs.

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 $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

We determined that the global pandemic that was declared in March 2020 was a triggering event requiring us to assess our long-lived assets including goodwill for impairment in the first quarter of 2020.

The Company's impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $810,000 and goodwill was impaired for $2.1 million, and the Company recorded these impairments in the first quarter of 2020.

The Company also did an annual assessment of our long-lived assets in the fourth quarter of 2020 but determined that no impairment was required at that time.

General and administrative expenses were $4.7 million and $4.6 million for the three months ended March 31, 2022 and 2021, respectively.

General and administrative expenses increased $108,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $503,000 increase in payroll expenses and payroll related expenses, offset partially by the decrease of $340,000 decrease in stock-based compensation.

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, 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.

Other income (loss) was $1.4 million and ($166,000), respectively, for the three months ended March 31, 2022 and 2021.

The increase for the three months ended March 31, 2022 from three months ended March 31, 2021 was due primarily to the $1.2 million German federal government funding for COVID pandemic relief and $195,000 escrow payment for WeGo sale the Company received in the three months ended March 31, 2022.

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 $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 .

Income tax expense was $968,000 and $742,000, respectively, for the three months ended March 31, 2022 and 2021.

Our effective tax rate was 29% and (80)%, respectively, for the three months ended March 31, 2022 and 2021.

Our effective tax rate changed for the three months ended March 31, 2022 from three months ended March 31, 2021 primarily due to pre-tax book income in the three months ended March 31, 2022 versus a pre-tax book loss in the three months ended March 31, 2021 and a decrease in non-deductible stock compensation in the three months ended March 31, 2022.

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenue $ 11,696 $ 9,819

Operating profit (loss) $ (918) $ (696) $ 2,654 $ (6,374)

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

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(In thousands) (In thousands)

Operating profit $ 1,718 $ 39

Operating profit as a % of revenue 14.7 % 0.4 %

North America revenues increased by $1.9 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 (see “Revenues” above).

North America expenses increased by $198,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $561,000 increase in software license costs and $249,000 increase in marketing expenses, offset partially by $477,000 decrease in credit card fees.

Three Months Ended March 31,

(In thousands)

Revenue $ 5,934 $ 3,578

1 unchanged sentence

Operating profit (loss) as a % of revenue 3.0 % (19.5) %

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.

Europe revenues increased by $2.4 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 (see “Revenues” above).

Europe expenses increased by $1.5 million for the three months ended March 31, 2022 from the three months ended March 31, 2021.

The increase was primarily due to $899,000 increase in member acquisition costs, $171,000 increase in customer retention costs, $169,000 increase in bad debt expenses and $141,000 increase in marketing expenses.

Foreign currency movements relative to the U.S.

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.

dollar positively impacted our local currency income from our operations in Europe by approximately $9,000 for the three months ended March 31, 2022.

Foreign currency movements relative to the U.S.

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.

dollar negatively impacted our local currency income from our operations in Europe by approximately $61,000 for the three months ended March 31, 2021.

Jack ’ s Flight Club

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

2021 2020 2021 2020

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenue $ 823 $ 887

1 unchanged sentence

Operating profit (loss) as a % of revenue 2.8 % (12.4) %

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.

Jack ’ s Flight Club revenues decreased by $64,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021.

Jack ’ s Flight Club expenses de creased by $197,000 for the three months ended March 31, 2022 from the three months ended March 31, 2021 primarily due to an estimate for indirect tax expenses the Company recorded during the three months ended March 31, 2021.

Liquidity and Capital Resources

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.

As of March 31, 2022, we had $35.6 million in cash and cash equivalents, of which $20.1 million was held outside the U.S.

in our foreign operations.

We also had $1.1 million in restricted cash, of which $421,000 was held outside the U.S.

in our foreign operations as of March 31, 2022.

If this cash is distributed to the U.S., we may be subject to additional U.S.

taxes in certain circumstances.

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

Cash and cash equivalents decreased $8.2 million from $45.0 million as of December 31, 2021 primarily due to $6.8 million cash used in operating activities and $942,000 cash used in investing activities primarily as the result of intangible assets purchases.

As of March 31, 2022 , the Company had merchant payables of $60.5 million related to unredeemed vouchers.

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

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Payables to merchants are generally due upon redemption of vouchers.

The vouchers have maturities from October 2021 through December 2023.

The vouchers have maturities from April 2022 through December 2025 with the majority of vouchers expiring by the end of 2022 and the remaining primarily expiring in 2023;

provided, that these expiration dates may sometimes be extended on a case-by-case basis.

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.

Based on current projections of redemption activity, we expect that cash on hand as of March 31, 2022 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.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Net cash provided by operating activities $ 9,283 $ 37,584

Net cash provided by (used in) operating activities $ (6,764) $ 9,064

Net cash used in investing activities (942) (7)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash (524) 270

Net increase in cash, cash equivalents and restricted cash $ 2,016 $ 31,274

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 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.

Net increase (decrease) in cash, cash equivalents and restricted cash $ (8,230) $ 7,744

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

Net cash used in operating activities for the three months ended March 31, 2022 was $6.8 million, which primarily consisted of $8.8 million decrease in cash from changes in operating assets and liabilities and $366,000 decrease in non-cash items, offset partially by net income of $2.4 million.

The decrease in cash from changes in operating assets and liabilities was primarily due to $8.0 million decrease in merchant payables.

Adjustments for non-cash items primarily consisted of $1.4 million reversal of reserves from accounts receivable and other reserves, offset partially by $574,000 for depreciation and amortization and $542,000 for stock-based compensation.

Cash paid for income tax, net of refunds received, during the three months ended March 31, 2022 and 2021 was $259,000 and $592,000, respectively.

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was $942,000 and $7,000, respectively.

The cash used in investing activities for the three months ended March 31, 2022 was primarily consisted of the $1.0 million for purchases of intangible assets.

The cash used in investing activities for the three months ended March 31, 2021 was due to the $7,000 for purchases of property and equipment.

Net cash used in financing activities for the three months ended March 31, 2022 and 2021 was $0 and $1.6 million, respectively.

The cash used in financing activities for the three months ended March 31, 2021 was primarily due to $1.6 million paid for common stock repurchase.

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 $1.3 million as of September 30, 2021.

We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $1.3 million as of March 31, 2022.

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