What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-14 · 123 added, 129 removed, 331 unchanged (43% of the section changed)

20 unchanged sentences

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.

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 ;

and (c) the transfer to the Company of all outstanding capital stock of MTE.

The Company recorded the $4.8 million promissory note as Note receivable from shareholder in the stockholder’' equity section on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the note.

The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan.

Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note.

In connection with the development of Travelzoo META, on December 28, 2022, the Company acquired MTE, a wholly owned subsidiary of Azzurro, and also completed a private placement of newly issued shares.

Acquisitions in the unaudit ed condensed consolidated financial statements for further information.

Jack’s Flight Club

1 unchanged sentence

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

As of June 30, 2023, Jack’s Flight Club h ad over 2 million subscribers.

As of September 30, 2023, Jack’s Flight Club h ad over 2 million subscribers.

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

6 unchanged sentences

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, $113,000 was repaid during six months ended June 30, 2023, and the remaining is expected to be paid off in 2023.

The Company recorded this loan as current prepaid expense and other on the condensed consolidated balance sheet as of June 30, 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 $9,000 and $7,000 for its licensing arrangements from the licensee in Australia for the three months ended June 30, 2023 and 2022, respectively.

The Company recognized royalties of $17,000 and $12,000 for its licensing arrangements from the licensee in Australia for the six months ended June 30, 2023 and 2022 , respectively.

The Company recognized royalties of $4,000 for its licensing arrangements from the licensee in Japan for the three and six months ended June 30, 2023.

An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021, $113,000 was repaid during nine months ended September 30, 2023, and the remaining is expected to be paid off in 2023.

The Company recorded this loan as current prepaid expense and other on the condensed consolidated balance sheet as of September 30, 2023.

The Company recognized royalties of $9,000 and $13,000 for its licensing arrangements from the licensee in Japan for the three and nine months ended September 30, 2023, respectively.

The Company did not recognize any royalty from Travelzoo Japan in 2022.

The Company recognized royalties of $9,000 and $8,000 for its licensing arrangements from the licensee in Australia for the three months ended September 30, 2023 and 2022, respectively.

The Company recognized royalties of $26,000 and $18,000 for its licensing arrangements from the licensee in Australia for the nine months ended September 30, 2023 and 2022 , respectively.

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

2 unchanged sentences

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 and May 2023.

Travelzoo Germany applied for the funding in 2021 and 2022, respectively, and was approved by the German government in January 2022, July of 2022, and May 2023.

The Company has to submit a final declaration in connection with the grant and the declaration date has been extended from June 30, 2023 to December 31, 2023.

1 unchanged sentence

The Company recorded $1.2 million, $494,000 and $205,000 gains in Other income, net in the first and third quarters of 2022 and second quarter of 2023, respectively.

The Company also received $85,000 and $153,000 job retention related funding from Canada in the three and six months ended June 30, 2022.

The Company also received $10,000 and $164,000 job retention related funding from Canada in the three and nine months ended September 30, 2022.

Such funding was recorded against salary and related expenses.

21 unchanged sentences

Listing fees are based on audience reach, placement, number of listings, number of impressions, number of clicks, and actual sales.

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.

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.

3 unchanged sentences

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

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

The expiration dates of vouchers range between October 2023 through December 2025;

provided, that these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration.

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 June 30, 2023, the Company had approximately $6.0 million of unredeemed vouchers that had been sold through June 30, 2023 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $572,000 for these unredeemed vouchers as of June 30, 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 $23.9 million as of June 30, 2023 related to unredeemed vouchers.

As of September 30, 2023, the Company had approximately $5.9 million of unredeemed vouchers that had been sold through September 30, 2023 representing the Company’s commission earned from the sale.

The Company had estimated a refund liability of $421,000 for these unredeemed vouchers as of September 30, 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 $23.7 million as of September 30, 2023 related to unredeemed vouchers.

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

20 unchanged sentences

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

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

Top 20 ) to another (e.g.

Local Deals and Getaways ).

Additionally, existing advertisers may shift from one advertising service (e.g., Top 20 ) to another (e.g., Local Deals and Getaways ).

These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers, and in particular with Local Deals and Getaways , depending on how many vouchers are purchased by members.

Local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand.

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.

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 vouchers 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.

4 unchanged sentences

The costs to grow our audience have had, and we expect will continue to have, a significant impact on our financial results and can vary from period to period.

We may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition.

We may have to increase our expenditure on acquiring traffic to continue to grow or maintain our reach of our publications due to competition.

We continue to see a shift in the audience to accessing our services through mobile devices and social media.

15 unchanged sentences

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

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

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

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

1 unchanged sentence

We expect the average cost per acquisition to increase with our increased expectations for the quality of the members we acquire.

We may see an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses.

We may see a unique opportunity for a brand marketing campaign that will result in an increase in marketing expenses.

In addition, there may be a significant number of members that cancel or we may cancel their subscription for various reasons, which may drive us to spend more on member acquisition in order to replace the lost members.

1 unchanged sentence

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

We expect increased marketing expense to spur continued growth in members and revenue in future periods;

We expect increased marketing expenses to spur continued growth in members and revenue in future periods;

however, we cannot be assured of this due to the many factors that impact our growth in members and revenue.

4 unchanged sentences

We expect our efforts on developing our product and services will continue to be a focus in the future, which may lead to increased product development expenses.

This increase in expense may be the result of an increase in costs related to third party technology service providers and software licenses, headcount, the compensation related to existing headcount and the increased use of professional services.

This increase in

expense may be the result of an increase in costs related to third party technology service providers and software licenses, headcount, the compensation related to existing headcount and the increased use of professional services.

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

8 unchanged sentences

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.

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

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

10 unchanged sentences

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

19 unchanged sentences

Three Months Ended

September 30,

North America

25 unchanged sentences

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

15 unchanged sentences

Travelzoo North America

North America revenues increased $1.8 million for the three months ended June 30, 2023 from the three months ended June 30, 2022.

North America revenues increased $2.9 million for the three months ended September 30, 2023 from the three months ended September 30, 2022.

This increase was primarily due to $3.1 million increase in Travel revenues, offset partially by $173,000 decrease in Local revenues.

The increase in Travel revenue of $2.0 million was primarily due to the increase of revenues from Top 20 and Standalone.

The increase in Travel revenue of $3.1 million was primarily due to the $1.1 million increase in Getaways revenue, $1.0 million increase in revenues from Top 20 and Standalone and $763,000 increase in Hotel commission.

The decrease in Local revenues of $173,000 was primarily due to the decrease in number of Local Deals vouchers sold.

North America revenues increased $4.8 million for the six months ended June 30, 2023 from the six months ended June 30, 2022.

North America revenues increased $7.7 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022.

This increase was primarily due to $8.2 million increase in Travel revenues, offset partially by $460,000 decrease in Local revenues.

The increase in Travel revenue of $5.1 million was primarily due to $4.4 million increase as a result of higher revenues from Top 20 and Standalone and $794,000 increase in hotel commission .

The increase in Travel revenue of $8.2 million was primarily due to $5.4 million increase as a result of higher revenues from Top 20 and Standalone, $1.6 million increase in hotel commission and $782,000 increase in Getaways revenue.

The decrease in Local revenues of $460,000 was primarily due to the decrease in number of Local Deals vouchers sold.

Travelzoo Europe

Europe revenues increased $1.5 million for the three months ended June 30, 2023 from the three months ended June 30, 2022 .

The increase was primarily due to $1.5 million increase in Travel revenues and $61,000 increase in Local revenue, offset partially by $73,000 negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $1.5 million was primarily due to the increase of revenues from Top 20 and Standalone .

Europe revenues increased $1.5 million for the three months ended September 30, 2023 from the three months ended September 30, 2022 .

The increase was primarily due to $1.1 million increase in Travel revenues and $35,000 increase in Local revenue and $298,000 positive impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $1.1 million was primarily due to the increase in revenues from Top 20 and Standalone .

The increase in Local revenues of $35,000 was primarily due to the increase in number of Local Deals vouchers sold.

Europe revenues increased $1.5 million for the six months ended June 30, 2023 from the six months ended June 30, 2022 .

Europe revenues increased $3.0 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 .

The increase was primarily due to $3.0 million increase in Travel revenues and $148,000 increase in Local revenue, offset partially by $149,000 negative impact from foreign currency movements relative to the U.S.

The increase in Travel revenue of $1.8 million was primarily due to $2.5 million increase as a result of higher revenues from Top 20 and Standalone , offset partially by $626,000 decrease in Getaways revenue due to a decrease in number of vouchers sold.

The increase in Travel revenue of $3.0 million was primarily due to $2.7 million increase as a result of higher revenues from Top 20 and Standalone and $404,000 increase in Hotel commission.

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

2 unchanged sentences

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

Jack’s Flight Club’s revenue increased by $143,000 and $268,000, respectively, for three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 due to the increase of premium members.

Jack’s Flight Club’s revenue increased by $333,000 and $601,000, respectively, for three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 primarily due to the increase of premium members.

New Initiatives

3 unchanged sentences

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

Revenue from New Initiatives business segment was $13,000 and $5,000 for the three months ended June 30, 2023 and 2022, respectively.

Revenue from New Initiatives business segment was $21,000 and $10,000 for the six months ended June 30, 2023 and 2022, respectively.

Revenue from New Initiatives business segment was $28,000 and $8,000 for the three months ended September 30, 2023 and 2022, respectively.

Revenue from New Initiatives business segment was $49,000 and $18,000 for the nine months ended September 30, 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 $2.9 million and $2.2 million, respectively, for the three months ended June 30, 2023 and 2022.

Cost of revenues was $5.6 million and $5.0 million, respectively, for the six months ended June 30, 2023 and 2022, respectively.

Cost of revenues increased $717,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to $322,000 increase in expenses from third-party partners of the Travelzoo Network, $131,000 increase in credit card fees and $121,000 increase in software license expenses

Cost of revenues increased $576,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to $309,000 increase in expenses from third-party partners of the Travelzoo Network, $142,000 increase in credit card fees and $131,000 increase in professional services expenses.

Cost of revenues was $2.7 million and $2.3 million, respectively, for the three months ended September 30, 2023 and 2022.

Cost of revenues was $8.2 million and $7.3 million, respectively, for the nine months ended September 30, 2023 and 2022, respectively.

Cost of revenues increased $341,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 primarily due to $177,000 increase in credit card fees as a result of increased voucher sales and $110,000 increase in salary and headcount related expenses.

Cost of revenues increased $917,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to $347,000 increase in salary and headcount related expenses, $320,000 increase in credit card fees as a result of increased voucher sales and $218,000 increase in expenses from third-party partners of the Travelzoo Network.

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 $10.1 million and $8.5 million for the three months ended June 30, 2023 and 2022, respectively.

Sales and marketing expenses were $19.4 million and $17.1 million for the six months ended June 30, 2023 and 2022, respectively.

Sales and marketing expenses were $9.8 million and $8.5 million for the three months ended September 30, 2023 and 2022, respectively.

Sales and marketing expenses were $29.3 million and $25.6 million for the nine months ended September 30, 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 June 30, 2023 and 2022, advertising expenses accounted for 28% and 25%, respectively, of the total sales and marketing expenses.

For the six months ended June 30, 2023 and 2022, advertising expenses accounted for 27% and 21%, respectively, of the total sales and marketing expenses.

For the three months ended September 30, 2023 and 2022, advertising expenses accounted for 29% and 25%, respectively, of the total sales and marketing expenses.

For the nine months ended September 30, 2023 and 2022, advertising expenses accounted for 28% and 22%, 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 $1.7 million for the three months ended June 30, 2023 from the three months ended June 30, 2022.

The increase was primarily due to $619,000 increase in salary and headcount related expenses, $498,000 increase in member acquisition costs and $248,000 increase in marketing expenses.

Sales and marketing expenses increased $2.4 million for the six months ended June 30, 2023 from the six months ended June 30, 2022 .

The increase was primarily due to $1.2 million increase in member acquisition costs, $939,000 increase in salary and headcount related expenses and $151,000 increase in marketing expenses.

Sales and marketing expenses increased $1.3 million for the three months ended September 30, 2023 from the three months ended September 30, 2022.

The increase was primarily due to $628,000 increase in member acquisition costs and $500,000 increase in salary and headcount related expenses.

Sales and marketing expenses increased $3.7 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 .

The increase was primarily due to $1.8 million increase in member acquisition costs and $1.4 million increase in salary and headcount related expenses.

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 $518,000 and $454,000 for the three months ended June 30, 2023 and 2022, respectively.

Product development expenses were $1.0 million and $907,000 for the six months ended June 30, 2023 and 2022, respectively.

Product development expenses increased $64,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to the expenses of the New Initiative segment for developing Travelzoo META and scouting, compiling and developing Metaverse travel experiences.

Product development expenses increased 101,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to the expenses of the New Initiative segment for developing Travelzoo META and scouting, compiling and developing Metaverse travel experiences.

Product development expenses were $525,000 and $484,000 for the three months ended September 30, 2023 and 2022, respectively.

Product development expenses were $1.5 million and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Product development expenses increased $41,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 primarily due to the expenses of the New Initiative segment for developing Travelzoo META and scouting, compiling and developing Metaverse travel experiences.

Product development expenses increased 142,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to the expenses of the New Initiative segment for developing Travelzoo META and scouting, compiling and developing 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 $4.8 million for the three months ended June 30, 2023 and 2022, respectively.

General and administrative expenses were $8.7 million and $9.5 million for the six months ended June 30, 2023 and 2022, respectively.

General and administrative expenses decreased $496,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to the decrease in salary and headcount related expenses which included the decrease of stock-based compensation expense.

General and administrative expenses decreased $751,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to the decrease in salary and headcount related expenses which included the decrease of stock-based compensation expense.

General and administrative expenses were $4.5 million and $4.3 million for the three months ended September 30, 2023 and 2022, respectively.

General and administrative expenses were $13.2 million and $13.7 million for the nine months ended September 30, 2023 and 2022, respectively.

General and administrative expenses increased $204,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 primarily due to the increase in bad debt expense.

General and administrative expenses decreased $547,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to the 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, sublease income, 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, net was $479,000 and $195,00, respectively, for the three months ended June 30, 2023 and 2022.

Other income, net was $829,000 and $1.6 million, respectively, for the six months ended June 30, 2023 and 2022.

The increase of $284,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 was due primarily to the $205,000 German federal government funding for COVID pandemic relief the Company received in the three months ended June 30, 2023.

The decrease of $789,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 was due primarily to the $1.2 million German federal government funding for COVID pandemic relief the Company received in the six months ended June 30, 2022, offset partially by the $205,000 German federal government funding for COVID pandemic relief the Company received in the six months ended June 30, 2023.

Other income, net was $314,000 and $836,00, respectively, for the three months ended September 30, 2023 and 2022.

Other income, net was $1.1 million and $2.5 million, respectively, for the nine months ended September 30, 2023 and 2022.

The decrease of $522,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 was due primarily to the $494,000 German federal government funding for COVID pandemic relief in the three months ended September 30, 2022.

The decrease of $1.3 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 was due primarily to the $1.7 million German federal government funding for COVID pandemic relief the Company received in the nine months ended September 30, 2022, offset partially by the $205,000 German federal government funding for COVID pandemic relief the Company received in the six months ended September 30, 2023.

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 $1.1 million and $928,000, respectively, for the three months ended June 30, 2023 and 2022.

Our effective tax rate was 29% and 47%, respectively, for the three months ended June 30, 2023 and 2022, respectively.

Our effective tax rate changed for the three months ended June 30, 2023 from three months ended June 30, 2022 primarily due to a decrease in non-deductible stock compensation in the three months ended June 30, 2023.

Income tax expense was $2.5 million and $1.9 million, respectively, for the six months ended June 30, 2023 and 2022.

Our effective tax rate was 28% and 36%, respectively, for the six months ended June 30, 2023 and 2022.

Our effective tax rate changed for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to a decrease in non-deductible stock compensation in the six months ended June 30, 2023.

Income tax expense was $1.0 million and $317,000, respectively, for the three months ended September 30, 2023 and 2022.

Our effective tax rate was 30% and 29%, respectively, for the three months ended September 30, 2023 and 2022, respectively.

Our effective tax rate changed for the three months ended September 30, 2023 from three months ended September 30, 2022 primarily due to an increase in certain foreign losses not benefited in the three months ended September 30, 2023.

Income tax expense was $3.5 million and $2.2 million, respectively, for the nine months ended September 30, 2023 and 2022.

Our effective tax rate was 28% and 34%, respectively, for the nine months ended September 30, 2023 and 2022.

Our effective tax rate changed for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to a decrease in non-deductible stock compensation in the nine months ended September 30, 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.

6 unchanged sentences

Travelzoo North America

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

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

2023 2022 2023 2022

3 unchanged sentences

Operating profit as a % of revenue 22.5 % 9.7 % 26.7 % 17.7 %

North America revenues increased by $1.8 million for the three months ended June 30, 2023 from the three months ended June 30, 2022 (see “Revenues” above).

North America expenses increase by $1.3 million for the three months ended June 30, 2023 from the three months ended June 30, 2022.

The increase was primarily due to $581,000 increase in member acquisition costs, $197,000 increase in expenses from third-party partners of the Travelzoo Network, $161,000 increase in salary and headcount related expenses, $151,000 increase in professional service expenses and $100,000 increase in software license expenses.

North America revenues increased by $4.8 million for the six months ended June 30, 2023 from the six months ended June 30, 2022 (see “Revenues” above).

North America expenses increase by $1.6 million for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to the increase in member acquisition costs.

North America revenues increased by $2.9 million for the three months ended September 30, 2023 from the three months ended September 30, 2022 (see “Revenues” above).

North America expenses increase by $924,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022.

The increase was primarily due to $249,000 increase in salary and headcount related expenses, $207,000 increase in member acquisition costs, $180,000 increase in professional service expenses, $153,000 increase in credit card fees as a result of increased voucher sales and $118,000 increase in legal expenses.

North America revenues increased by $7.7 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 (see “Revenues” above).

North America expenses increase by $2.6 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to $1.6 million increase in member acquisition costs and $850,000 increase in salary and headcount related expenses.

Travelzoo Europe

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

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

2023 2022 2023 2022

3 unchanged sentences

Operating profit as a % of revenue 4.5 % (12.2) % 2.7 % (12.5) %

Europe revenues increased by $1.5 million for the three months ended June 30, 2023 from the three months ended June 30, 2022 (see “Revenues” above).

Europe expenses increased by $300,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to $197,000 increase in marketing expenses and $111,000 increase in professional service expenses

Europe revenues increased by $1.5 million for the six months ended June 30, 2023 from the six months ended June 30, 2022 (see “Revenues” above).

Europe expenses decreased by $26,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to $347,000 decrease in salary and headcount related expenses, offset partially by $283,000 increase in marketing expenses

Europe revenues increased by $1.5 million for the three months ended September 30, 2023 from the three months ended September 30, 2022 (see “Revenues” above).

Europe expenses increased by $661,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 primarily due to $421,000 increase in member acquisition costs and $244,000 increase in salary and headcount related expenses.

Europe revenues increased by $3.0 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 (see “Revenues” above).

Europe expenses increased by $635,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to $226,000 increase in professional service expenses, $150,000 increase in member acquisition costs and $111,000 increase in bad debt expense.

Foreign currency movements relative to the U.S.

dollar negatively impacted our local currency income from our operations in Europe by approximately $21,000 and $79,000 for the three and six months ended June 30, 2023, respectively.

dollar positively impacted our local currency income from our operations in Europe by approximately $13,000 and $87,000 for the three months ended September 30, 2023 and 2022, respectively.

Foreign currency movements relative to the U.S.

dollar positively impacted our local currency income from our operations in Europe by approximately $200,000 and $165,000 for the three and six months ended June 30, 2022, respectively.

dollar negatively impacted our local currency income from our operations in Europe by approximately $66,000 for the nine months ended September 30, 2023.

Foreign currency movements relative to the U.S.

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

Jack ’ s Flight Club

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

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

2023 2022 2023 2022

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Operating profit (loss) as a % of revenue 12.2 % 1.4 % 6.1 % 7.5 %

Jack ’ s Flight Club revenues increased by $143,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $207,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to an increase in advertising and marketing expenses.

Jack ’ s Flight Club revenues increased by $268,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $400,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to an increase in advertising and marketing expenses.

Jack ’ s Flight Club revenues increased by $333,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $201,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 primarily due to an increase in advertising and marketing expenses.

Jack ’ s Flight Club revenues increased by $601,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 (see “Revenues” above).

Jack ’ s Flight Club expenses in creased by $601,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to an increase in advertising and marketing expenses.

New Initiatives

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

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

2023 2022 2023 2022

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

Licensing revenue was $13,000 and $5,000 for the three months ended June 30, 2023 and 2022, respectively.

New Initiatives segment expenses increased by $166,000 for the three months ended June 30, 2023 from the three months ended June 30, 2022 primarily due to $124,000 increase in p roduct development and product marketing expenses and $42,000 increase in in salary and related expenses.

Licensing revenue was $21,000 and $10,000 for the six months ended June 30, 2023 and 2022, respectively.

New Initiatives segment expenses increased by $284,000 for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to $184,000 increase in p roduct development and product marketing expenses and $100,000 increase in in salary and related expenses.

New Initiatives revenues increased $20,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 due to $10,000 revenue from META subscription service and the $10,000 increase in licensing revenue.

New Initiatives segment expenses increased by $128,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 primarily due to increase in p roduct development and product marketing expenses.

New Initiatives revenues increased $31,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 due to $10,000 revenue from META subscription service and the $21,000 increase in licensing revenue.

New Initiatives segment expenses increased by $284,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 primarily due to the increase in p roduct development and product marketing expenses.

Liquidity and Capital Resources

As of June 30, 2023, we had $19.5 million in cash and cash equivalents, of which $13.3 million was held outside the U.S.

As of September 30, 2023, we had $15.9 million in cash and cash equivalents, of which $10.8 million was held outside the U.S.

in our foreign operations.

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

as of June 30, 2023.

Cash, cash equivalents and restricted cash increased $819,000 from $19.4 million as of December 31, 2022 to $20.2 million as of June 30, 2023 primarily due to $5.6 million cash provided by operating activities, offset partially by the $5.2 million cash used by financing activities.

As of June 30, 2023 , the Company had merchant payables of $23.9 million related to unredeemed vouchers.

as of September 30, 2023.

Cash, cash equivalents and restricted cash decreased $2.8 million from $19.4 million as of December 31, 2022 to $16.6 million as of September 30, 2023 primarily due to $11.8 million cash used to repurchase common stock, offset partially by $9.3 million cash provided by operating activities.

As of September 30, 2023 , the Company had merchant payables of $23.7 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 July 2023 through December 2025 with the majority of vouchers expiring during 2023;

The vouchers expire between October 2023 through December 2025;

provided, that these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration.

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 June 30, 2023 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 September 30, 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.

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash 80 (3,267)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 819 $ (18,309)

Net decrease in cash, cash equivalents and restricted cash $ (2,796) $ (24,444)

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 provided by operating activities for the six months ended June 30, 2023 was $5.6 million, which primarily consisted of net income of $6.3 million, $882,000 increase in non-cash items and $1.6 million decrease in cash from changes in operating assets and liabilities.

Adjustments for non-cash items primarily consisted of $945,000 for depreciation and amortization and $827,000 for stock-based compensation, offset partially by $829,000 reversal of reserves from accounts receivable and other.

The decrease in cash from changes in operating assets and liabilities was primarily due to $8.6 million decrease in merchant payables and $2.4 million decrease in accounts payable, offset partially by $3.9 million increase in accounts receivable and 2.6 million increase in accrued expenses and other.

Net cash used in operating activities for the six months ended June 30, 2022 was $17.0 million, which primarily consisted of $21.0 million decrease in cash from changes in operating assets and liabilities, offset partially by net income of $3.4 million and $609,000 increase in non-cash items.

The decrease in cash from changes in operating assets and liabilities was primarily due to $19.8 million decrease in merchant payables and $2.1 million decrease in accounts payables.

Net cash provided by operating activities for the nine months ended September 30, 2023 was $9.3 million, which primarily consisted of net income of $8.7 million and $1.6 million increase in non-cash items, offset partially by $1.1 million decrease in cash from changes in operating assets and liabilities.

Adjustments for non-cash items primarily consisted of $1.4 million for depreciation and amortization and $1.2 million for stock-based compensation, offset partially by $944,000 reversal of reserves from accounts receivable and other.

The decrease in cash from changes in operating assets and liabilities was primarily due to $8.8 million decrease in merchant payables and $1.7 million decrease in accounts payable, offset partially by $3.3 million decrease in accounts receivable, $2.3 million decrease in prepaid expenses and other, $1.9 million increase in other liabilities, net.

$1.1 million decrease in prepaid income taxes.

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.

Cash refunds for income tax, net of payment made, during the six months ended June 30, 2023 was $494,000.

Cash paid for income tax, net of refunds received, during the six months ended June 30, 2022 was $771,000 .

Net cash used in investing activities for the six months ended June 30, 2023 was $44,000.

The cash used in investing activities for the six months ended June 30, 2023 was primarily consisted of the $157,000 purchases of property and equipment, offset partially by $113,000 proceeds from repayment of the Japan loan.

Net cash used in investing activities for the six months ended June 30, 2022 was $1.0 million.

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

Net cash used for financing activities for the six months ended June 30, 2023 was $5.2 million which primarily consisted of the repurchase of common stocks.

Net cash provided by financing activities for the six months ended June 30, 2022 was $1.9 million which primarily consisted of the proceeds from exercise of stock options.

Cash refunds for income tax, net of payment made, during the nine months ended September 30, 2023 was $228,000.

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

Net cash used in investing activities for the nine months ended September 30, 2023 was $104,000.

The cash used in investing activities for the nine months ended September 30, 2023 was primarily consisted of the $217,000 purchases of property and equipment, offset partially by $113,000 proceeds from repayment of the Japan loan.

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

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.

Net cash used for financing activities for the nine months ended September 30, 2023 was $12.1 million which primarily consisted of the repurchase of common stocks.

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.

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.

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.

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.

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

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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 and penalties, of approximately $17.5 million as of June 30, 2023.

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $23.2 million as of September 30, 2023.

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

11 unchanged sentences

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