What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-31 · 155 added, 137 removed, 367 unchanged (44% of the section changed)

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Travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other circumstances occur in the future.

Travelzoo® is a global Internet media company.

We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe.

We are a global Internet media company.

Travelzoo® provides its 30 million members with exclusive offers and one-of-a-kind experiences personally reviewed by our deal experts around the globe.

We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences.

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.

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.

More than 5,000 companies use our services, including Alaska Airlines, DH Travel Services, Entertainment Benefits Group, Exoticca, Fairmont Mayakoba, Gate 1 Travel, Globus Family of Brands, Hawaiian Airlines, Icelandair (US), Imagine Cruising, Indus Travels Inc., Jetline Travel, KLM Royal Dutch Airlines, Shutterfly, Silversea Cruises, Stunning Tours, Superchina Holidays, Tourism Ireland, Travel Discounters, Vacation Express USA Corp, Wingbuddy.com

In 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association in U.S.

In 2021, the principal and the interest of the $3.1 million PPP loan and $429,000 of the $535,000 PPP loan were forgiven and a gain was recorded in “Other income (loss), net”.

The Company paid off the remaining outstanding principal balance and interest of $111,000 for the $535,000 PPP loan .

The Company also received various government funding from its European and Canadian locations in 2021 and 2020.

Job retention related funding from Canada was approximately $400,000 and $280,000 for 2021 and 2020, respectively, and from European locations was approximately $31,000 and $1.1 million for 2021 and 2020, respectively.

Those funding was recorded against salary and related expenses.

In addition, $178,000 Germany funding for the fixed cost incurred was received and recorded in “Other income (loss), net” for 2020.

In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model, whereby Travelzoo’s business practices and intellectual property are utilized by local licensees to continue to provide high quality insider deals and content to Travelzoo members throughout Asia Pacific.

Such existing members in Asia Pacific will continue to be owned by Travelzoo as the licensor.

We work in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.

Travelzoo attracts a high-quality audience of travel enthusiasts across multiple digital platforms, including email, websites, social media and mobile applications.

The Travelzoo website is visited by 5.4 million to 6.6 million unique visitors each month.

We have over 4.5 million followers on Facebook, Instagram, and Twitter, Our Apple and Android mobile applications have been downloaded 7.4 million times.

Our most important products and services are the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Top 20 ® email newsletter, the Travelzoo Network , and Jack's Flight Club®.

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

Jack's Flight Club is a subscription service that provides members with information about exceptional airfares.

We also license Travelzoo products and our intellectual property to licensees in various countries in Asia Pacific, including but not limited to Australia, Japan and Southeast Asia.

In March 2022, we announced the development of Travelzoo META, a subscription service that intends to provide members with exclusive access to innovative, high quality Metaverse travel experiences.

On December 30, 2022, we acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), a Metaverse experience scouting business to support Travelzoo META.

As of December 31, 2022, we had 30.4 million members worldwide.

In North America, the unduplicated number of Travelzoo members was 16.3 million as of December 31, 2022, down 4% from December 31, 2021.

In Europe, the unduplicated number of Travelzoo members was 9.0 million as of December 31, 2022, up 8% from December 31, 2021.

Jack’s Flight Club had 1.9 million subscribers as of December 31, 2022, up 8% from December 31, 2021.

More th an 5,000 travel and local providers use o ur advertising and marketing services, including Air France, Air New Zealand, Air Tahiti Nui, Alaska Airlines, Cathay Pacific Airways, Club Med, Emirates, Etihad, Exoticca, Fairmont Hotels and Resorts, Fiji Airways, Gate 1 Travel, Hilton Hotels & Resorts, Hyatt Corporation, Icelandair, InterContinental Hotels Group, Lion World Travel, Myrtle Beach Area Conventions & Visitors Bureau, Princess Cruises, Royal Caribbean, Singapore Airlines, Starwood Hotels & Resorts and United Airlines.

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc., a Related-Party

In connection with the development of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro, and also completed a private placement of newly issued shares.

Ralph Bartel, who founded the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro.

Azzurro was the Company’s largest shareholder as of the time of this transaction and as of December 31, 2022 owned approximately 50.3% the Company's outstanding shares.

On December 28, 2022, the stockholders of Travelzoo approved the issuance and sale of 3.4 million shares

of common stock (the “Shares”) of Travelzoo to Azzurro, in exchange for certain consideration, and on December 30, 2022 (the “Closing Date”), the transaction was consummated.

The closing price of Travelzoo’s common stock on December 30, 2022 was $4.45 per share, resulting in an aggregate fair value $15.2 million.

The Purchase Price was paid as follows:

(a) $1.0 million in cash paid on the Closing Date;

(b) $4.8 million paid in the form of a promissory note issued on the Closing Date and payable by June 30, 2023 with accrued interest of 12%;

and (c) the transfer to the Company of all outstanding capital stock of Metaverse Travel Experiences, Inc.

(“MTE”), which transfer was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date.

The Company recorded the $4.8 million promissory note as Note receivable from shareholder in the stockholders' equity section on the consolidated balance sheet as of December 31, 2022.

Government funding

In January 2022 and July 2022, the Com pany’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received the notification and payment of approximately $1.2 million and $494,000, respectively, from the German Federal Government Bridging Aid III plan and Bridging Aid III+.

This program was for companies that suffered a pandemic-related decrease in sales of at least 30% in one month compared to the reference month in 2019.

Travelzoo Germany applied for the funding in 2021 and 2022, respectively, and was approved by the German government in January 2022 and July of 2022.

The Company has to submit a final declaration in connection with this grant by June 30, 2023.

The Company believes it was eligible to participate in the plan and is entitled to the payment and does not expect significant changes to the amount already received from the final submission.

The Company recorded $1.2 million and $494,000 gains in Other income, net in the first and third quarters of 2022.

In 2020, we received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association.

In 2021, the principal and the interest of the $3.1 million PPP loan were forgiven and a gain was recorded, the Company also settled the $535,000 PPP loan, $429,000 was forgiven which was recorded as gain and the remaining outstanding balance of the loan and interest of $111,000 was paid off.

The Company also received job retention related government funding in 2022 and 2021.

Job retention related funding from Canada location was approximately $164,000 and $400,000 for 2022 and 2021, respectively.

The Company did not receive retention related funding from European locations in 2022.

Job retention related funding from European locations was approximately $31,000 for 2021.

Those fundings were recorded against salary and related expenses.

APAC Exit and Pivot to Licensing Model

In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model.

The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020.

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The territory subject to the license was amended to also include South Korea.

An interest free loan was provided to the licensee to be repaid over 3 years for JPY 46

million (approximately $430,000), of which $133,000 was repaid in 2021.

The Company recorded this loan as other assets on the consolidated balance sheet as of December 31, 2021.

An interest free loan was provided to the licensee to be repaid over 3 years for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021 and the remaining is expected to be paid off in 2023.

The Company recorded this loan as short-term prepaid expense and other on the consolidated balance sheet as of December 31, 2022.

The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew.

The Company records royalties for its licensing arrangements on a one-quarter lag basis.

The Company recognized royalties of $25,000 and $3,000 for its licensing arrangements from AUS Buyer for the years ended December 31, 2022 and 2021.

The Company did not record royalties from Travelzoo Japan for the year ended December 31, 2022.

The Company recognized royalties of $9,000 from Travelzoo Japan for the year ended December 31, 2021.

We expect the royalty payments to increase over time as the effects of the pandemic subside.

WeGo Investment

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 approximatel y $2.9 million, of which $213,000 was placed in escrow for one year.

The Company received the full escrow payment in January 2022.

As o f 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.

We held a minority share equal to 33.7% in weekengo GmbH ("WeGo"), which the Company sold to trivago N.V.

(“trivago”) on December 23, 2020.

Per the Share Purchase Agreement, by and among Travelzoo (Europe) Limited, trivago, and the other shareholders of WeGo (the “trivago SPA”), the Company sold all of its shares in WeGo to trivago for a total purchase price of approximately $2.9 million , of which $196,000 was placed in escrow for one year.

The Company recorded $468,000 gain in Other income (loss), net for the sale of WeGo shares in 2020.

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

WeGo agreed to pay in a lump sum the remaining amount outstanding pursuant to the Insertion Order

equal to approximately $200,000 .

The payment was made and recorded in the first quarter of 2021.

The Second Insertion Order and any obligation for additional payments from WeGo for marketing were terminated.

Acquisition of Jack's Flight Club

In January 2020, Travelzoo acquired JFC Travel Group Co.

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For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising.

Insertion orders for publishing revenue are typically for periods between one month and

twelve months and are not automatically renewed.

Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed.

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

Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed.

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 full refunds for vouchers that have not been redeemed or expired .

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

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

This policy has been adjusted starting April 1, 2022, back to fully refundable within fourteen days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable.

The expiration dates of vouchers range between January 2023 through December 2025 with the majority of vouchers expiring in 2023;

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

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The Company had estimated a refund liability of $1.3 million for these unredeemed vouchers as of December 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 $68.7 million as of December 31, 2021 related to unredeemed vouchers.

The Company has recorded merchant payables of

$32.6 million as of December 31, 2022 related to unredeemed vouchers.

With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.

The "Local" category consists of publishing revenue for negotiated high-quality deals from local businesses, such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).

The "Local" category consists of publishing revenue for negotiated high-quality offers from local businesses, such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).

The revenues generated from these products are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach.

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

Insertion orders and merchant agreements for Local are typically for periods between one month and twelve months and are not automatically renewed.

Insertion orders and merchant agreements for Local Deals are typically for periods between one month and twelve months and are not automatically renewed.

Certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we recognize as revenue based upon estimates at the time of sale.

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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 risks due to increased dependence on digital technologies.

We also have been impacted and expect to continue to be impacted by external factors, such as the global pandemic, which decreased 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.

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In the last several years, we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for voucher sold.

However, due to the global pandemic and the increase in demand by consumers for fully refundable travel options, we have now begun to see a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers.

Demand for restaurants and spas was low due to the global pandemic but in recent quarters has started to increase as restrictions have been lifted.

However, due to the global pandemic and the increase in demand by consumers for fully refundable travel options, we saw a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers.

This trend has appeared to reverse again, particularly as we move away from full refundability on our vouchers.

However, demand for restaurants and spas was low due to the global pandemic but in recent quarters has started to increase as restrictions have been lifted.

Our ability to continue to generate advertising revenue and generate subscription revenue through Jack’s Flight Club depends heavily upon our ability to maintain and grow an attractive audience for our publications.

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Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and Getaways increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold, due to customer service costs related to vouchers sold and due to refunds to members on vouchers sold.

We expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter.

We expect fluctuations in cost of revenues as a percentage of

revenues from quarter to quarter.

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

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

With the impact to revenues caused by the global pandemic, spending by the Company in many areas within the business has been slowed or stopped, including but not limited to, marketing, technology and human resources.

With the impact to revenues caused by the global pandemic, spending by the Company in many areas within the business was slowed or stopped, including but not limited to, marketing, technology and human resources.

For example, in 2020, the Company ceased operations in Asia Pacific, conducted employee furloughs and restructured its employees significantly.

The Company also renegotiated many of its outstanding contractual obligations with vendors and closed some ancillary office locations in order to reduce capital expenditures.

We do not anticipate that any additional cost-cutting measures will be necessary at this time, but the Board and management of the Company are continually evaluating.

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 in 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.

We do not anticipate that any additional cost-cutting measures will be necessary at this time.

Instead, the Company is beginning to invest again in marketing, technology and human resources in line with the recovery of its revenue from the effects of the pandemic.

We expect to continue our efforts to grow;

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General and administrative 25.4 31.5

Impairment of intangible asset and goodwill — 5.4

Total operating expenses 75.1 83.9

Operating loss (2.1) (26.2)

Other income (loss), net 6.4 0.8

Income (loss) from continuing operations before income taxes 4.3 (25.4)

Income tax expense (benefit) 2.8 (4.6)

Income (loss) from continuing operations 1.5 (20.8)

Operating income (loss) 10.7 (2.1)

Other income, net 3.4 6.4

Income from continuing operations before income taxes 14.1 4.3

Income tax expense 4.6 2.8

Income from continuing operations 9.5 1.5

Loss from discontinued operations, net of tax (0.1) —

Net income (loss) 1.5 (27.1)

Net income 9.4 1.5

Net loss attributable to non-controlling interest — —

Net income (loss) attributable to Travelzoo 1.5 % (25.0) %

Net income (loss) attributable to Travelzoo—continuing operations 1.5 % (18.7) %

Net income attributable to Travelzoo 9.4 % 1.5 %

Net income attributable to Travelzoo—continuing operations 9.5 % 1.5 %

Net loss attributable to Travelzoo—discontinued operations (0.1) % — %

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Social media followers 4,123,000 4,151,000

(1) Members represent individuals who are signed up to receive one or more of our free email publications that present our travel, entertainment and local deals.

(1) Members represent individuals who are signed up to receive one or more of our email publications that present our travel, entertainment and local deals.

(2) Annual revenue divided by number of members at the beginning of the year.

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The following table sets forth the breakdown of revenues (in thousands) by category and segment.

Travel revenue includes travel publications ( Top 20, Website, Newsflash, Travelzoo Network ), Getaways vouchers, and hotel platform and vacation packages.

Travel revenue includes travel publications ( Top 20, Website, Travelzoo emails, Travelzoo Network ), Getaways vouchers, and hotel platform and vacation packages.

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

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North America revenues increa sed $5.6 million or 13% in 2022 compared to 2021.

This increase was primarily due to $6.8 million increase in Travel revenues and $342,000 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 was primarily due to increase as a result of higher revenues from Top 20 and Newsflash .

The increase in Local revenues of $342,000 was primarily due to the increase in number of Local Deals vouchers sold.

This increase was primarily due to $5.6 million increase in Travel revenues, offset partially by $16,000 decrease in Local revenues.

The increase in Travel revenue of $5.6 million was primarily due to $11.4 million increase in revenues from Top 20 and Standalone, offset partially by $5.8 million decrease in Getaways revenue due to a decrease in the number of vouchers sold.

The decrease in Local revenues of $16,000 was primarily due to the decrease in the number of Local Deals vouchers sold.

Travelzoo Europe

Europe revenues increased $2.1 million or 12% in 2022 compared to 2021.

The increase was primarily due to $491,000 increase in Travel revenues, $700,000 increase in Local revenues and $984,000 positive impact from foreign currency movements relative to the U.S.

The increase in Travel revenue was primarily due to increase in Getaways vouchers sold .

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

This increase was primarily due to $5.1 million increase in Travel revenues, offset partially by $571,000 decrease in Local revenues and $2.4 million negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue was primarily due to $5.1 million increase in revenues from Top 20 and Standalone , offset partially by $3.3 million decrease in Getaways revenue due to a decrease in number of vouchers sold.

The decrease in Local revenues of $571,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Jack’s Flight Club

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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 was $3.3 million for the year ended December 31, 2021 and was $3.5 million for the period between January 13, 2020 through December 31, 2020.

The revenue for 2020 was negatively impacted by approximately $1.0 million from January 13, 2020 through December 31, 2020 due to the acquisition revenue adjustment related to the deferred revenue sold prior to acquisition.

Jack’s Flight Club’s revenue increased $131,000 or 4% in 2022 compared to 2021 due to the increase in premium members.

For 2022 and 2021, none of our customers accounted for 10% or more of our revenue.

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, software license expenses, 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 $10.0 million and $11.4 million for the years ended December 31, 2022 and 2021, respectively.

Cost of revenues for Travelzoo North America and Travelzoo Europe was $11.1 million and $10.2 million, respectively, for the years ended December 31, 2021 and 2020.

The increase of $856,000 was primarily due to $1.5 million increase in software license expenses and $281,000 increase in customer service costs, offset partially by $910,000 decrease in credit card fees.

Cost of revenue for Jack’s Flight Club decreased to $313,000 for the year ended December 31, 2021 from $344,000 for the period between January 13, 2020 through December 31, 2020.

The decrease of $31,000 was primarily due the decrease in payment processing fees.

Cost of revenues decreased $1.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to $975,000 decrease in credit card fees as a result of decreased voucher sales and $596,000 decrease in network expenses.

Operating Expenses

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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 $29.7 million and $30.0 million, respectively, for the years ended December 31, 2021 and 2020 .

The decrease of $238,000 was primarily due to $1.2 million decrease in facilities costs and $340,000 decrease in software license expenses, offset partially by $1.2 million increase in member acquisition costs.

Sales and marketing expenses for Jack's Flight Club decreased to $549,000 for the year ended December 31, 2021 from $633,000 for the period between January 13, 2 020 through December 31, 2020 primarily due to decrease in advertising and marketing expenses.

Sales and marketing expenses increased $2.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to $2.4 million increase in member acquisition costs.

Product Development

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

Product development expenses consist primarily of salary and related expenses associated with software development staff, fees for professional services, software maintenance, amortization and facilities costs.

Product development expenses were $2.1 million and $2.6 million for the years ended December 31, 2022 and 2021, respectively.

Jack's Flight Club did not incur product development expenses for the years ended December 31, 2021 and 2020

Product development expenses decreased $491,000 in 2021 compared to 2020 primarily due to the decrease in salary and headcount related expenses.

Product development expenses decreased $526,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to a decrease in salary and 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 consist primarily of salary and related expenses associated with administrative and executive employees, bad debt expense, professional service expenses, legal expenses, amortization of intangible assets, general office expense and facilities costs.

General and administrative expenses were $17.9 million and $19.8 million for the years ended 2022 and 2021, respectively.

General and administrative expenses for Travelzoo North America and Travelzoo Europe was $17.4 million and $18.1 million, respectively, for the years ended December 31, 2021 and 2020, respectively.

The decrease of $662,000 was primarily due to $2.0 million decrease in bad debt expense and $1.4 million decrease in salary and 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 and $822,000 gain from the sale the domain name and trademark “weekend.com.

General and administrative expenses for Jack’s Flight Club was $2.4 million for the year ended December 31, 2021, consistent with the $2.4 million for the period between January 13, 2020 through December 31, 2020.

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 ended March 31, 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 2021 and 2020 but determined that no impairment was required at that time.

Other Income (Loss), net

Other income (loss), net 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 $4.0 million and $455,000 for the years ended December 31, 2021 and 2020, respectively.

Other income (loss) for Travelzoo North America and Travelzoo Europe was $4.0 million and $450,000 for the years ended December 31, 2021 and 2020, respectively.

The increase for the year ended December 31, 2021 from the year ended December 31, 2020 was due to $3.6 million gain recorded as the result of PPP loan forgiveness in the year ended December 31, 2021.

General and administrative expenses decreased $1.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to $1.8 million decrease in salary and headcount related expenses which mainly related to the $1.9 million decrease o f stock-based compensation expense.

The annual impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $200,000 in 2022 and the Company recorded this impairment in the General and administrative expenses in 2022.

Other Income, net

Other income, net consisted primarily of foreign exchange transactions gains and losses, our share of investment gains and losses, su blease income, gains from PPP loan forgiveness, German federal government funding for Corona-related pandemic relief, interest income earned on cash, cash equivalents and restricted cash as well as interest expense.

Other income was $2.4 million and $4.0 million for the years ended December 31, 2022 and 2021, respectively.

Other income decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021 was due primarily to $3.6 million gain recorded as the result of PPP loan forgiveness in 2021 offset partially by the $1.7 million German federal government funding for COVID pandemic relief and the $196,000 escrow payment for WeGo sale the Company received in 2022.

Our income is generally 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, adjusted to take into account expenses that are treated as having no recognizable tax benefit.

Income tax expense (benefit) was $1.8 million and ($2.4) million, respectively, for the years ended December 31, 2021 and 2020.

Income tax expense was $3.3 million and $1.8 million, respectively, for the years ended December 31, 2022 and 2021.

Our effective tax rate was 33% and 66% for 2022 and 2021, respectively.

Our effective tax rate increased for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to operating income in 2021 and disallowed excess compensation of officers in 2021.

We expect our effective tax rate to fluctuate in future periods depending on the geographic mix of our worldwide income or losses mainl y 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.

Our effective tax rate decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to disallowed excess compensation of officers in 2021.

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 and the need for valuation allowances on certain tax assets, if any.

Inc ome Taxes” to the accompanying consolidated financial statements for further information.

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Revenues $ 47,667 $ 42,046

Income (loss) from operations $ 550 $ (5,056)

Income (loss) from operations as a % of revenues 1 % (14) %

North America revenues increased by $7.1 million in 2021 compared to 2020 (see “Revenues” above).

North America expenses increased by $1.5 million from 2020 to 2021 primarily due to $1.5 million increase in member acquisition costs, $1.5 million gain related to Jack Flight Club's promissory note forgiveness in 2020 and $897,000 increase in software license expenses, offset partially by $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.

Income from operations $ 9,360 $ 550

Income from operations as a % of revenues 20 % 1 %

North America revenues increased by $5.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 (see “Revenues” above).

North America expenses decreased by $3.2 million from 2021 to 2022 primarily due to $1.4 million decrease in salary and headcount related expenses, $820,000 decrease in credit card fee as a result of decreased voucher sales, $597,000 decrease in network expenses and $477,000 decrease in legal expenses.

Travelzoo Europe

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Loss from operations as a % of revenues (9) % (12) %

Europe net revenues increased $2.2 million in 2021 compared to 2020 (see “Revenues” above).

Europe expenses decreased $2.0 million from 2020 to 2021 primarily due to $1.6 million decrease in bad debt expenses and $323,000 decrease in marketing expenses.

Europe net revenues increased $2.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 (see “Revenues” above).

Europe expenses increased $1.9 million from 2021 to 2022 primarily due to $2.2 million increase in member acquisition costs.

Foreign currency movement s relative to the U.S.

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Revenues $ 3,477 $ 3,346

Income (loss) from operations $ 134 $ (2,814)

Income (loss) from operations as a % of revenues 4 % (80) %

Jack’s Flight Club revenues de creased by $191,000 for the year ended December 31, 2021 compared to the revenues from January 13, 2020 through December 31, 2020 (see “Revenues” above).

Jack’s Flight Club expenses decreased by $3.1 million for the year ended December 31, 2021 compared to the period between January 13, 2020 through December 31, 2020 primarily due to the $2.9 million of impairment of intangible assets and goodwill charges the Company recorded in the first quarter of 2020.

Income from operations $ — $ 134

Income from operations as a % of revenues — % 4 %

Jack’s Flight Club revenues in creased by $131,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021 (see “Revenues” above).

Jack’s Flight Club expenses increased by $265,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in advertising and marketing expenses.

Liquidity and Capital Resources

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in our foreign operations.

We also had $1.1 million in restricted cash, of which $428,000 was held outside the U.S.

in our foreign operations as of December 31, 2021.

We also had $675,000 in restricted cash held in the U.S.

as of December 31, 2022.

If the assets held outside the U.S.

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taxes in certain circumstances.

Cash, cash equivalents and restricted cash decreased $19.4 million from $64.4 million as of December 31, 2020 primarily due to $8.1 million cash used in operating activities and $11.2 million cash used in financing activities primarily for common stock repurchases and taxes paid for net share settlement.

Cash, cash equivalents and restricted cash decreased $25.6 million from $45.0 million as of December 31, 2021 primarily due to $23.1 million cash used in operating activities and $1.3 million cash used in investing activities primarily for purchase of intangible assets.

As of December 31, 2022 , we had m erchant payables of $32.6 million related to unredeemed vouchers.

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Payables to merchants are generally due upon redemption of vouchers.

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

The vouchers have maturities from January 2023 through December 2025 with the majority of vouchers expiring in 2023;

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

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(In thousands)

Net cash provided by (used in) operating activities $ (8,083) $ 47,019

Net cash provided by investing activities 104 2,067

Net cash used in financing activities (11,158) (6,982)

Net cash used in operating activities $ (23,121) $ (8,083)

Net cash provided by (used in) investing activities (1,315) 104

Net cash provided by (used in) financing activities 1,282 (11,158)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (2,457) (259)

Net increase (decrease) in cash, cash equivalents and restricted cash $ (19,396) $ 43,675

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 decrease in cash, cash equivalents and restricted cash $ (25,611) $ (19,396)

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

Net cash used in operating activities for 2022 was $23.1 million, which consisted of $30.4 million decrease in cash from changes in operating assets and liabilities, offset partially by net income of $6.6 million and $684,000 increase in non-cash items.

The decrease in cash from changes in operating assets and liabilities was primarily due to $35.2 million decrease in merchant payables, offset partially by $1.6 million decrease in prepaid expenses and other, $1.5 million decrease in prepaid income tax and $1.3 million decrease in accounts receivables.

Adjustments for non-cash items primarily consisted of $2.2 million for depreciation and amortization, $1.8 million for stock-based compensation and $774,000 for deferred income tax, offset partially by $4.4 million reversal of reserves from accounts receivable and other reserves.

Net cash used in operating activities was $8.1 million for 2021, which consisted of $11.8 million decrease in cash from changes in operating assets and liabilities, offset partially by $2.8 million non-cash items and net income of $902,000.

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Adjustments for non-cash items primarily consisted of $3.7 million of stock-based compensation and $1.8 million depreciation and amortization, offset partially by $3.6 million gain on PPP notes payable forgiveness.

Net cash provided by operating activities was $47.0 million for 2020, which consisted of $50.8 million increase in cash from changes in operating assets and liabilities and $10.8 million non-cash items, offset partially by net loss of $14.6 million.

The increase in cash from changes in operating assets and liabilities primarily consisted of the $44.1 million increase in merchant payables and $6.2 million decrease in accounts receivable.

Adjustments for non-cash items primarily consisted of $6.2 million of stock-based compensation, $5.4 million from provision of loss on accounts receivable and refund reserve, $2.9 million impairment of goodwill and intangible assets and $2.3 million depreciation and amortization, offset partially by $3.4 million deferred income tax and $1.5 million gain relating to Jack Flight Club's Promissory notes forgiveness.

Cash paid for income taxes, net of refunds received in 2022 and 2021, was $1.1 million and $3.1 million, respectively.

Net cash used in investing activities for 2021 was $104,000 which consisted of $133,000 proceeds from repayment of investment Japan loan, offset by $29,000 in purchases of property and equipment.

Net cash provided by investing activities for 2020 was $2.1 million which consisted of $2.6 million proceeds from sale of our equity investment in WeGo and $822,000 proceeds for the sale the domain name and trademark “weekend.com”, offset partially by $1.0 million investment in Jack’s Flight Club acquisition less acquired cash of $321,000, $430,000 other investments and $253,000 in purchases of property and equipment.

Net cash used in financing activities for 2021 and 2020 was $11.2 million and $7.0 million, respectively.

Net cash used in financing activities for the year ended December 31, 2021 primarily consisted of taxes paid for net share settlement of $5.6 million and stock repurchases of $5.5 million.

Net cash used in financing activities for the year ended December 31, 2020 primarily consisted of payment of $9.5 million promissory note for Jack’s Flight Club stock purchase and $1.2 million for the repurchase of common stock, offset partially by $3.7 million proceeds from PPP loans.

Net cash used in investing activities for 2022 was $1.3 million which consisted of $1.0 million for purchases of intangible assets and $462,000 for purchases of property and equipment..

Net cash provided by investing activities for 2021 was $104,000 which consisted of $133,000 proceeds from repayment of investment Japan loan.

Net cash provided by financing activities for 2022 was $1.3 million which primarily consisted of $1.9 million proceeds from the exercise of stock options and $1.0 million proceeds from the issuance of common stock in a private placement, offset partially by $1.6 million for the repurchase of common stock.

Net cash used in financing activities for 2021 was $11.2 million which primarily consisted of taxes paid for net share settlement of $5.6 million and stock repurchases of $5.5 million.

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

Therefore, we are continuing our voluntary program under which we make cash payments to individuals related to the promotional shares for individuals whose residence was unknown by us and who establish that they satisfied the conditions to receive shares of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period.

Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period.

This voluntary program is not available for individuals whose promotional shares have been escheated to a state by us.

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In addition, we will continue to evaluate possible investments in businesses, products and technologies, the consummation of any of which would increase our capital requirements.

We are subject to risks and uncertainties as a result of the global pandemic.

Because of the global pandemic, many of our advertisers have paused, canceled, and stopped advertising with us.

Additionally, there have been a large amount of cancellations for our hotel and travel package partners as well as refund requests for our vouchers with the Company’s restaurant and spa partners.

We have taken steps to adopt new policies and reduce expenses in an effort to maintain our cash position, while we evaluate potential business options and strategic alternatives that may be available.

Although we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months, unanticipated events and opportunities or a less favorable than expected development of our business with one or more of advertising formats may require us to sell additional equity or debt securities or establish new credit facilities to raise capital in order to meet our capital requirements.

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Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The Company's revenues are primarily advertising fees generated from the publishing of travel and entertainment deals on the Travelzoo website, in the Top 20 email newsletter, in Newsflash and through the Travelzoo Network .

The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform, limited offerings of vacation packages and subscription revenues from Jack's Flight Club.

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For these customers, the Company recognizes revenues each time a user clicks on the ad.

The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisement, Travelzoo Network properties, or social media properties.

The Company also offers advertising on other basis, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisement, Travelzoo Network properties, or social media properties.

For these customers, the Company recognizes revenues each time an ad is displayed or email delivered.

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Revenues are presented net of the amounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds.

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

This refund policy has been adjusted starting April 1, 2022, back to fully refundable within fourteen days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable.

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

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These costs are recorded in sales and marketing expenses.

In addition, the Company does not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.

In addition, the Company does not disclose the value of unsatisfied performance obligations

for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.

Reserve for Member Refunds

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Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed.

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

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

The expiration dates of vouchers range between January 2023 through December 2025 with the majority of vouchers expiring in 2023;

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

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In estimating the provision for doubtful accounts, management considers the age of the accounts receivable, historical write-offs, the creditworthiness of the advertiser, the economic conditions of the advertiser’s industry, and general economic conditions, among other factors.

Should any of these factors change, the estimates made by management will also change, which could impact the level of the future provision for doubtful accounts.

Should any of these factors

change, the estimates made by management will also change, which could impact the level of the future provision for doubtful accounts.

Specifically, if the financial condition of our advertisers were to deteriorate, affecting their ability to make payments, additional provision for doubtful accounts may be required.

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See “Note 1 — Summary of Significant Accounting Policies” to the accompanying consolidated financial statements included in this report, regarding our significant accounting policies and any impact of certain recent accounting pronouncements on our consolidated financial statements.

Recent Accounting Pronouncements

For a discussion of the recent accounting pronouncements, see Note 1 of the consolidated financial statements

Quantitative and Qualitative Disclosures About Market Risk

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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-K

Item 7. Management’s Discussion and Analysis