What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-12 compared with 2022-11-14 · 165 added, 147 removed, 247 unchanged (56% of the section changed)

9 unchanged sentences

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.

In January and July 2022, the Company’s German branch of Travelzoo (Europe) Limited received the payment for approximately $1.2 million and $494,000, respectively, from German federal government for companies suffered Corona-related slump.

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

The Company also received other government fundings for the three and nine months ended September 30, 2022 and 2021.

Job retention related funding from Canada was approximately $10,000 and $64,000 for the three months ended September 30, 2022 and 2021, respectively, and was approximately $164,000 and $381,000 for the nine months ended September 30, 2022 and 2021, respectively.

Job retention related funding from European locations was $0 and $31,000 for the three and nine months ended September 30, 2021, respectively.

These other government fundings were recorded against salary and related expenses.

The Company did not receive any job retention related funding from European locations for the three and nine months ended September 30, 2022.

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 $196,000 was placed in escrow for one year.

The Company received the full escrow payment in January 2022 and recorded the gain in Other income, net for the first quarter of 2022.

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.

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 MTE, a Metaverse experience scouting business to support Travelzoo META.

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc.

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 is the Company’s largest shareholder as of the time of this transaction and as of December 31, 2022, Azzurro and Ralph Bartel 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 to Azzurro, in exchange for certain consideration, and on 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 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 condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.

The related interest of $143,000 was recorded in Prepaid expenses and other on the condensed consolidated balance sheet as of March 31, 2023 .

Jack’s Flight Club

In January 2020, Travelzoo acquired JFC Travel Group Co.

(“Jack’s Flight Club”), which operates Jack’s Flight Club , a subscription service that provides members with information about exceptional airfares.

As of March 31, 2023, Jack’s Flight Club h ad 2.0 million subscribers.

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

See Note 3 to the unaudited condensed consolidated financial statements for further information.

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.

Travelzoo currently has license agreements in Japan and South Korea, as well as Australia, New Zealand and Singapore.

The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew.

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

An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021, $39,000 was repaid during the three months ended March 31, 2023, and the remaining 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 March 31, 2023.

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 $8,000 and $5,000 for its licensing arrangements from the licensee in Australia for the three months ended March 31, 2023 and 2022, respectively.

The Company did not recognize any royalty from Travelzoo Japan for the three months ended March 31, 2023 and 2022.

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

Government funding

In January 2022 and July 2022, the Company’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 from the German Federal Government Bridging Aid III plan and Bridging Aid III+, respectively.

This program was for companies that suffered a Corona-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 to 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.

The Company also received $68,000 job retention related funding from Canada in the three months ended March 31, 2022.

Such funding was recorded against salary and related expenses.

The Company did not receive job retention related funding in the three months ended March 31, 2023.

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

In the first quarter of 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its consolidated financial statements for current and prior periods presented.

On January 13, 2020, Travelzoo entered into a Sales Purchase Agreement with the Sellers of Jack’s Flight Club to purchase 60% of the Shares.

Upon the acquisition, the Company's chief operating decision maker reviewed and evaluated Jack’s Flight Club as a separate segment.

Travelzoo currently has three reportable operating segments:

Travelzoo North America, Travelzoo Europe and Jack’s Flight Club.

During the three months ended March 31, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented.

On January 13, 2020, Travelzoo agreed to the SPA with the Sellers of Jack’s Flight Club to purchase 60% of the Shares.

Upon acquisition, the Company ’ s chief operating decision maker reviewed and evaluated Jack ’ s Flight Club as a separate segment.

In 2020, Travelzoo entered into royalty-bearing licensing agreements with local licensees for Australia, Japan, New Zealand, and Singapore.

Travelzoo granted licensees the exclusive use of Travelzoo’s brand, but continuously own the existing members as the licensor.

In March 2022, the Company 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, the Company acquired MTE, a Metaverse experience scouting business to support Travelzoo META.

The Company ’ s chief operating decision maker viewed licensing and Travelzoo META as New Initiatives and reviewed and evaluated New Initiatives as a separate segment.

The Company currently has four reportable operating segments:

Travelzoo North America, Travelzoo Europe, Jack’s Flight Club and New Initiatives.

Travelzoo North America consists of the Company’s operations in Canada and the U.S.

Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the UK.

Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the U.K.

Jack’s Flight Club consists of subscription revenue from premium members to access and receive flight deals from Jack’s Flight Club via email or via Android or Apple mobile applications.

New Initiatives consists of Travelzoo licensing business and Travelzoo META subscription service and scouting business.

When evaluating the financial condition and operating performance of the Company, management focuses on financial and non-financial indicators such as growth in the number of members to the Company’s newsletters, operating margin, growth in revenues in the absolute and relative to the growth in reach of the Company’s publications measured as revenue per member and revenue per employee as a measure of productivity.

10 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 2022 through December 2025 with the majority of vouchers expiring during 2023;

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

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

2 unchanged sentences

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, 2022, the Company had approximately $9.6 million of unredeemed vouchers that had been sold through September 30, 2022 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $1.9 million for these unredeemed vouchers as of September 30, 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 $38.2 million as of September 30, 2022 related to unredeemed vouchers.

As of March 31, 2023, the Company had approximately $7.0 million of unredeemed vouchers that had been sold through March 31, 2023 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $0.8 million for these unredeemed vouchers as of March 31, 2023 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 $28.0 million as of March 31, 2023 related to unredeemed vouchers.

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

28 unchanged sentences

Demand for restaurants and spas continues to be low due to the global pandemic.

Our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications.

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.

We monitor our members to assess our efforts to maintain and grow our audience reach.

46 unchanged sentences

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 Company spending.

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 flexible working arrangements.

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.

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,

2022 2021 2022 2021

Three Months Ended

Revenues 100.0 % 100.0 %

6 unchanged sentences

Total operating expenses 65.7 74.3

Operating income (loss) 1.7 (1.7) 7.7 5.0

Operating income 21.8 10.4

Other income, net 1.6 7.7

2 unchanged sentences

Income from continuing operations 17.0 12.9

Income (loss) from discontinued operations, net of taxes — (0.1) — —

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

Net income 17.0 12.8

4 unchanged sentences

Three Months Ended

September 30,

North America

3 unchanged sentences

Revenue per employee (3) $ 465,000 $ 393,000

Mobile application downloads 4,158,000 4,014,000

Social media followers 3,282,000 3,252,000

3 unchanged sentences

Revenue per employee (3) $ 23,200 $ 227,000

Mobile application downloads 2,356,000 2,161,000

Social media followers 906,000 898,000

5 unchanged sentences

Revenue per employee (3) $ 361,000 $ 315,000

Mobile application downloads 7,524,000 7,181,000

Social media followers 4,188,000 4,150,000

3 unchanged sentences

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

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

Travel revenue includes travel publications ( Top 20 , Travelzoo website, standalone 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).

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Travelzoo North America

7 unchanged sentences

Jack’s Flight Club 948 823

New Initiatives 8 5

Travelzoo Travel 19,690 16,669

1 unchanged sentence

Jack’s Flight Club 948 823

New Initiatives 8 5

Total revenues $ 21,601 $ 18,453

Travelzoo North America

North America revenues increased $835,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021.

This increase was primarily due to $590,000 increase in Travel revenues and $245,000 increase in Local revenues.

The increase in Travel revenue of $590,000 was primarily due to $2.2 million increase as a result of higher revenues from Top 20 and Newsflash, offset partially by $1.5 million decrease in Getaways revenue due to a decrease in number of vouchers sold .

The increase in Local revenues of $245,000 was primarily due to the increase in number of Local Deals vouchers sold.

North America revenues increased $1.1 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021.

This increase was primarily due to $1.0 million increase in Travel revenues and $84,000 increase in Local revenues.

The increase in Travel revenue of $1.0 million was primarily due to $9.0 million increase as a result of higher revenues from Top 20 and Newsflash , offset partially by $8.1 million decrease in Getaways revenue due to a decrease in number of vouchers sold.

The increase in Local revenues of $84,000 was primarily due to the increase in number of Local Deals vouchers sold.

North America revenues increased $3.1 million for the three months ended March 31, 2023 from the three months ended March 31, 2022.

This increase was primarily due to $3.1 million increase in Travel revenues, offset partially by $28,000 decrease in Local revenues.

The increase in Travel revenue of $3.1 million was primarily due to $2.5 million increase as a result of higher revenues from Top 20 and Newsflash, $243,000 increase in hotel commission and $237,000 increase in Getaways revenue due to a decrease in number of vouchers sold .

The decrease in Local revenues of $28,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Travelzoo Europe

Europe revenues decreased $725,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 .

Europe revenues decreased $47,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 .

The decrease was primarily due to $373,000 negative impact from foreign currency movements relative to the U.S.

dollar and $131,000 decrease in Local revenue, offset partially by $265,000 increase in Travel revenues.

dollar offset partially by $273,000 increase in Travel revenues and $54,000 increase in Local revenue.

The increase in Travel revenue of $273,000 was primarily due to $1.4 million increase as a result of higher revenues from Top 20 and Newsflash , offset partially by $1.2 million decrease in Getaways revenue due to a decrease in number of vouchers sold.

The decrease in Local revenues of $131,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Europe revenues increased $1.8 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 .

The increase was primarily due to $3.7 million increase in Travel revenues, offset partially by $287,000 decrease in Local revenues and $1.7 million negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $3.7 million was primarily due to $3.9 million increase as a result of higher revenues from Top 20 and Newsflash, $1.6 million increase in hotel and entertainment commissions, revenue reserve adjustment of $1.0 million and $349,000 increase in our website advertisements, offset partially by $3.4 million decrease in Getaways revenue due to a decrease in number of vouchers sold.

The decrease in Local revenues of $287,000 was primarily due to the decrease in number of Local Deals vouchers sold.

The increase in Local revenues of $54,000 was primarily due to the increase in number of Local Deals vouchers sold.

Jack’s Flight Club

1 unchanged sentence

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

Jack’s Flight Club’s revenue increased by $51,000 and $79,000, respectively, for three and nine months ended September 30, 2022 from the three and nine months ended September 30, 2021 due to the increase of premium members.

Jack’s Flight Club’s revenue increased by $125,000 for three months ended March 31, 2023 from the three and nine months ended March 31, 2022 due to the increase of premium members.

New Initiatives

In 2020, Travelzoo entered into royalty-bearing licensing agreements with local licensees for Australia, Japan, New Zealand, and Singapore.

Travelzoo granted licensees the exclusive use of Travelzoo’s brand, but continuously own the existing members as the licensor.

On December 30, 2022, the Company acquired MTE, a Metaverse experience scouting business to support Travelzoo META.

Revenue from New Initiatives business segment was $8,000 and $5,000 for the three months ended March 31, 2023 and 2022, respectively.

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 and related expenses associated with network operations and customer service employees .

Cost of revenues was $2.3 million and $3.0 million, respectively, for the three months ended September 30, 2022 and 2021.

Cost of revenues was $7.3 million and $8.5 million, respectively, for the nine months ended September 30, 2022 and 2021.

Cost of revenues decreased $668,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 primarily due to $324,000 decrease in credit card fees as a result of decreased voucher sales, $256,000 decrease in software license expenses and $139,000 decrease in customer service costs associated with vouchers we sell and hotel bookings.

Cost of revenues decreased $1.2 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 primarily due to $999,000 decrease in credit card fees as a result of decreased voucher sales and $435,000 decrease in network expenses, offset partially by $299,000 increase in software license expenses.

Cost of revenues was $2.7 million and $2.8 million, respectively, for the three months ended March 31, 2023 and 2022.

Cost of revenues decreased $141,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 primarily due to $122,000 decrease in credit card fees as a result of decreased voucher sales.

Operating Expenses

1 unchanged sentence

Sales and marketing expenses consist primarily of advertising and promotional expenses, salary and related 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 $8.5 million and $7.7 million for the three months ended September 30, 2022 and 2021, respectively.

Sales and marketing expenses were $25.6 million and $21.8 million for the nine months ended September 30, 2022 and 2021, respectively.

Sales and marketing expenses were $9.3 million and $8.6 million for the three months ended March 31, 2023 and 2022, 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, 2022 and 2021, advertising expenses accounted for 25% and 17%, respectively, of the total sales and marketing expenses.

For the nine months ended September 30, 2022 and 2021, advertising expenses accounted for 22% and 11%, respectively, of the total sales and marketing expenses.

For the three months ended March 31, 2023 and 2022, advertising expenses accounted for 25% and 18%, 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 increased $803,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021.

The increase was primarily due to $466,000 increase in marketing expenses and $409,000 increase in member acquisition costs.

Sales and marketing expenses increased $3.7 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021.

The increase was primarily due to $2.4 million increase in member acquisition costs and $1.3 million increase in marketing expenses.

Sales and marketing expenses increased $715,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022.

The increase was primarily due to $660,000 increase in member acquisition costs.

Product Development

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

Product development expenses were $484,000 and $684,000 for the three months ended September 30, 2022 and 2021, respectively.

Product development expenses were $1.4 million and $2.1 million for the nine months ended September 30, 2022 and 2021, respectively.

Product development expenses decreased $200,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 primarily due to a decrease in salary and headcount related expenses .

Product development expenses decreased $661,000 for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 primarily due to a $407 ,000 decrease in salary and headcount related expenses and a $151,000 decrease in facilities costs.

Product development expenses were $490,000 and $453,000 for the three months ended March 31, 2023 and 2022, respectively.

Product development expenses increased $37,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 primarily due to the expenses of the New Initiative segment for developing Travelzoo META and scouting Metaverse travel experiences.

General and Administrative

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 $4.3 million and $4.6 million for the three months ended September 30, 2022 and 2021, respectively.

General and administrative expenses were $13.7 million and $14.2 million for the nine months ended September 30, 2022 and 2021, respectively.

General and administrative expenses decreased $308,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 primarily due to $881,000 decrease in salary and headcount related expenses which mainly related to the decrease of stock-based compensation expense, offset partially by $590,000 increase in professional service expenses.

General and administrative expenses decreased $445,000 for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 primarily due to $1.4 million decrease in salary and headcount related expenses which mainly related to the decrease of stock-based compensation expense, offset partially by $741,000 increase in professional service expenses and $344,000 increase in bad debt expense.

General and administrative expenses were $4.4 million and $4.7 million for the three months ended March 31, 2023 and 2022, respectively.

General and administrative expenses decreased $255,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 primarily due to $331,000 decrease in salary and headcount related expenses which included the decrease of stock-based compensation expense .

Other Income, net

Other income, net consisted primarily of foreign exchange transactions gains and losses, o ur share of investment gains and losses and amortization of basis differences, sublease income, gains from PPP loan forgiveness, German federal government funding for Corona-related pandemic relief, interest income earned on cash, cash equivalents and restric ted cash as well as interest expense.

Other income, net was $836,000 and $3.3 million, respectively, for the three months ended September 30, 2022 and 2021.

The decrease of $2.5 million for the three months ended September 30, 2022 from three months ended September 30, 2021 was due primarily to the $3.2 million gain recorded as the result of the PPP loan forgiveness in the three months ended September 30, 2021, offset partially by the $494,000 German federal government funding for COVID pandemic relief in the three months ended September 30, 2022.

Other income, net was $2.5 million and $3.9 million, respectively, for the nine months ended September 30, 2022 and 2021, respectively.

The decrease of $1.4 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 was due primarily to $3.6 million gain recorded as the result of PPP loan forgiveness in the nine months ended September 30, 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 the nine months ended September 30, 2022.

Other income, net consisted primarily of foreign exchange transactions gains and losses, sublease income, German federal government funding for Corona-related pandemic relief, interest income earned on cash, cash equivalents and restric ted cash as well as interest expense.

Other income, net was $350,000 and $1.4 million, respectively, for the three months ended March 31, 2023 and 2022.

The decrease of $1.1 million for the three months ended March 31, 2023 from the three months ended March 31, 2022 was due primarily to the $1.2 million German federal government funding for COVID pandemic relief 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 was $317,000 and $233,000, respectively, for the three months ended September 30, 2022 and 2021.

Our effective tax rate was 29% and 8%, respectively, for the three months ended September 30, 2022 and 2021.

Our effective tax rate changed for the three months ended September 30, 2022 from three months ended September 30, 2021 primarily due to other income recorded for PPP loan forgiveness in the three months ended September 30, 2021 that is exempt from tax.

Income tax expense was $2.2 million and $2.1 million, respectively, for each of the nine months ended September 30, 2022 and 2021.

Our effective tax rate was 34% and 33%, respectively, for the nine months ended September 30, 2022 and 2021.

Our effective tax rate changed for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 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 $1.4 million and $968,000, respectively, for the three months ended March 31, 2023 and 2022.

Our effective tax rate was 27% and 29%, respectively, for the three months ended March 31, 2023 and 2022, respectively.

Our effective tax rate changed for the three months ended March 31, 2023 from three months ended March 31, 2022 primarily due to a decrease in non-deductible stock compensation in the three months ended March 31, 2023

We expect our effective tax rate to fluctuate in future periods depending on the geo graphic 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,

2022 2021 2022 2021

(In thousands) (In thousands)

Revenue $ 10,498 $ 9,663 $ 34,577 $ 33,467

Operating profit (loss) $ 812 $ (918) $ 5,622 $ 2,654

Operating profit (loss) as a % of revenue 7.7 % (9.5) % 16.3 % 7.9 %

North America revenues increased by $835,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 (see “Revenues” above).

North America expenses decrease by $895,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021.

The decrease was primarily due to $344,000 decrease in salary and headcount related expenses, $307,000 decrease in facilities costs, $262,000 decrease in credit card fee as a result of decreased voucher sales, $200,000 decrease in software license expenses, $142,000 decrease in customer service costs associated with vouchers we sell and hotel bookings, offset partially by $384,000 increase in professional service expenses.

North America revenues in creased by $1.1 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 (see “Revenues” above).

North America expenses decreased by $1.9 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021.

The decrease was primarily due to $891,000 decrease in credit card fee as a result of decreased voucher sales, $872,000 decrease in facilities costs, $825,000 decrease in salary and headcount related expenses, offset partially by $398,000 increase in depreciation and amortization expenses and $272,000 increase in professional service expenses.

Three Months Ended March 31,

(In thousands)

Revenues $ 14,758 $ 11,691

Operating profit $ 4,516 $ 1,820

Operating profit as a % of revenue 30.6 % 15.6 %

North America revenues increased by $3.1 million for the three months ended March 31, 2023 from the three months ended March 31, 2022 (see “Revenues” above).

North America expenses increase by $371,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022.

The increase was primarily due to $848,000 increase in member acquisition costs, offsets partially by $266,000 decrease in software and licenses expenses and $212,000 decrease in legal expenses.

Travelzoo Europe

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

2022 2021 2022 2021

(In thousands) (In thousands)

Revenue $ 4,504 $ 5,229 $ 14,792 $ 13,041

Operating profit (loss) $ (551) $ 600 $ (1,845) $ (323)

Operating profit (loss) as a % of revenue (12.2) % 11.5 % (12.5) % (2.5) %

Europe revenues decreased by $725,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 (see “Revenues” above).

Europe expenses increased by $426,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 primarily due to $296,000 increase in member acquisition costs and $287,000 increase in marketing expenses.

Europe revenues increased by $1.8 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 (see “Revenues” above).

Europe expenses increased by $3.3 million for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 primarily due to $2.1 million increase in member acquisition costs, $518,000 increase in marketing expenses, $291,000 increase in professional service expenses and $287,000 in bad debt expense.

Three Months Ended March 31,

(In thousands)

Revenues $ 5,887 $ 5,934

Operating profit $ 457 $ 178

Operating profit as a % of revenue 7.8 % 3.0 %

Europe revenues decreased by $47,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 (see “Revenues” above).

Europe expenses decreased by $326,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 primarily due to decrease in in salary and headcount related expenses.

Foreign currency movements relative to the U.S.

dollar positively impacted our local currency income from our operations in Europe by approximately $87,000 and $267,000 for the three and nine months ended September 30, 2022, respectively.

dollar negatively impacted our local currency income from our operations in Europe by approximately $92,000 for the three months ended March 31, 2023.

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 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.

Jack ’ s Flight Club

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

2022 2021 2022 2021

(In thousands) (In thousands)

Revenue $ 847 $ 796 $ 2,622 $ 2,543

Operating profit $ 12 $ 57 $ 196 $ 117

Operating profit as a % of revenue 1.4 % 7.2 % 7.5 % 4.6 %

Jack ’ s Flight Club revenues increased by $51,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $101,000 for the three months ended September 30, 2022 from the three months ended September 30, 2021 primarily due to an increase in advertising and marketing expenses.

Jack ’ s Flight Club revenues increased by $79,000 for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 (see “Revenues” above).

Jack ’ s Flight Club expenses remained consistent for the nine months ended September 30, 2022 from the nine months ended September 30, 2021, an increase in advertising and marketing expenses during the nine months ended September 30, 2022 was offset by an estimate of indirect tax expenses the Company recorded during the nine months ended September 30, 2021.

Three Months Ended March 31,

(In thousands)

Revenues $ 948 $ 823

Operating profit (loss) $ (45) $ 23

Operating profit (loss) as a % of revenue (4.7) % 2.8 %

Jack ’ s Flight Club revenues increased by $125,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $193,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 primarily due to an increase in advertising and marketing expenses.

New Initiatives

Three Months Ended March 31,

(In thousands)

Revenues $ 8 $ 5

Operating profit (loss) $ (217) $ (102)

New Initiatives segment consists of Travelzoo licensing business and Travelzoo META subscription service and scouting business.

Licensing revenue was $8,000 and $5,000 for the three months ended March 31, 2023 and 2022, respectively.

New Initiatives segment expenses increased by $118,000 for the three months ended March 31, 2023 from the three months ended March 31, 2022 primarily due to $57,000 increase in in salary and headcount related expenses and $41,000 increase in professional service cost for product development.

Liquidity and Capital Resources

As of September 30, 2022, we had $19.5 million in cash and cash equivalents, of which $9.9 million was held outside the U.S.

As of March 31, 2023, we had $19.1 million in cash and cash equivalents, of which $10.6 million was held outside the U.S.

in our foreign operations.

We also had $1.0 million in restricted cash, of which $334,000 was held outside the U.S.

in our foreign operations as of September 30, 2022.

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

taxes in certain circumstances.

Cash, cash equivalents and restricted cash decreased $24.4 million from $45.0 million as of December 31, 2021 primarily due to $20.8 million cash used in operating activities.

As of September 30, 2022 , the Company had merchant payables of $38.2 million related to unredeemed vouchers.

We also had $679,000 in restricted cash held in the U.S.

as of March 31, 2023.

Cash, cash equivalents and restricted cash increased $449,000 from $19.4 million as of December 31, 2022 to $19.8 million as of March 31, 2023 primarily due to $535,000 cash provided by operating activities.

As of March 31, 2023 , the Company had merchant payables of $28.0 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 expire between October 2022 through December 2025 with the majority of vouchers expiring during 2023;

The vouchers expire between April 2023 through December 2025 with the majority of vouchers expiring during 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, 2022 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, 2023 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)

1 unchanged sentence

Net cash used in investing activities (72) (942)

Net cash provided by (used in) financing activities 761 (7,117)

Net cash used in financing activities (186) —

Effect of exchange rate changes on cash, cash equivalents and restricted cash 171 (524)

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Net cash provided by (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 the nine months ended September 30, 2022 was $20.8 million, which primarily consisted of $25.4 million decrease in cash from changes in operating assets and liabilities, offset partially by net income of $4.2 million and $283,000 increase in non-cash items.

The decrease in cash from changes in operating assets and liabilities was primarily due to $28.9 million decrease in merchant payables, offset partially by $2.5 million decrease in accounts receivables.

Adjustments for non-cash items primarily consisted of $1.7 million for depreciation and amortization, $1.5 million for stock-based compensation and $701,000 for deferred income tax, offset partially by $3.4 million reversal of reserves from accounts receivable and other reserves.

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 loan forgiveness and $2.8 million of stock-based compensation

Cash paid for income tax, net of refunds received, during the nine months ended September 30, 2022 and 2021 was $1.2 million and $3.0 million, respectively.

Net cash used in investing activities for the nine months ended September 30, 2022 and 2021 was $1.1 million and $24,000, respectively.

The cash used in investing activities for the nine months ended September 30, 2022 was primarily consisted of the $1.0 million for purchases of intangible assets.

The cash used in investing activities for the nine months ended September 30, 2021 was due to the $24,000 for purchases of property and equipment.

Net cash provided by financing activities for the nine months ended September 30, 2022 was $761,000.

The cash provided by financing activities for the nine months ended September 30, 2022 was primarily consisted of $1.9 million proceeds from the exercise of stock options, offset partially by $1.2 million for the repurchase of common stock .

Net cash used in financing activities for the nine months ended September 30, 2021 was $7.1 million which primarily consisted of $5.4 million in taxes paid for net settlement of stock options exercise and $1.6 million paid for the repurchase of common stock.

Net cash provided by operating activities for the three months ended March 31, 2023 was $535,000, which primarily consisted of net income of $3.7 million, offset partially by $3.2 million decrease in cash from changes in operating assets and liabilities.

The decrease in cash from changes in operating assets and liabilities was primarily due to $4.6 million decrease in merchant payables, offset partially by $911,000 increase in accrued expenses and other.

Adjustments for non-cash items primarily consisted of $478,000 for depreciation and amortization and $396,000 for stock-based compensation, offset partially by $712,000 reversal of reserves from accounts receivable and other.

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, 2023 and 2022 was $74,000 and $259,000, respectively.

Net cash used in investing activities for the three months ended March 31, 2023 and 2022 was $72,000 and $942,000, respectively.

The cash used in investing activities for the three months ended March 31, 2023 was primarily consisted of the $111,000 purchases of property and equipment.

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.

Net cash used for financing activities for the three months ended March 31, 2023 was $186,000.

The cash used for financing activities for the three months ended March 31, 2023 was consisted of $186,00 for the repurchase of common stock.

The Company did not incur cash activities for the three months ended March 31, 2022.

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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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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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 $1.5 million as of September 30, 2022.

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $17.6 million as of March 31, 2023.

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