What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-08 · 196 added, 307 removed, 147 unchanged (77% of the section changed)

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

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.

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 and development business to support Travelzoo META.

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc.

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

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 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.

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

Travelzoo (including its subsidiaries and affiliates, the “Company” or “we”) is a global Internet media company.

It operates Travelzoo®, the club for travel enthusiasts, and Jack’s Flight Club®, a subscription service that provides information about exceptional airfares.

Travelzoo has more than 30 million members.

Through its websites, e-mails newsletters, iOS and Android apps, and social media channels, Travelzoo provides members information and access to exclusive discounted travel, entertainment, and local offers and experiences.

Offers are researched, negotiated, and personally selected by Travelzoo’s deal experts around the globe.

Offers are sourced from more than 5,000 top travel and entertainment partners.

The Company generates revenues from advertising, membership fees, and other.

In March 2022, the Company began the development of Travelzoo META, a subscription service that is intended to provide Metaverse travel experiences.

We also license Travelzoo products, services and intellectual property to licenses in (a) Australia, New Zealand, and Singapore and (b) Japan and South Korea, in each case, where the Company is entitled to a quarterly royalty payment based on a percentage of net revenue.

The Company recognized $17,000 and $8,000 in royalties in the three months ended March 31, 2024 and 2023, respectively.

Under the licensing agreements, Travelzoo's existing member list in the applicable territories continue to be owned by the Company.

In May 2023 we launched Travelzoo META, to extend the range of experiences we offer consumers in the emerging metaverse.

This paid membership service currently provides founding members with a limited edition “Travel Companion” non-fungible token (“NFT”) and future access to beta version metaverse travel experiences, as developed.

In December 2022, we acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), to support Travelzoo META in sourcing prospective metaverser travel experiences.

MTE also continues to operate its legacy business in retail and fashion, which is included in but not material to the Company’s consolidated results.

See Note 3— Acquisitions to the accompanying condensed consolidated financial statements included in this report for further information regarding the acquisition of MTE.

APAC Exit and Pivot to Licensing Model

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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, $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 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 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.

Government funding

In January 2022, July 2022 and May 2023, 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, $494,000 and $205,000 from the German Federal Government Bridging Aid III plan, Bridging Aid III+ and Bridging Aid IV, 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, 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.

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, $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 $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.

The Company did not receive job retention related funding in 2023.

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

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 and development 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.

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

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

The Company recognized royalties o f $10,000 and $8,000 from the licensee for the three months ended March 31, 2024 and 2023, respectively.

The license agreement for Japan and South Korea provides the licensee exclusive rights to use Travelzoo products, services, and intellectual property in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew.

An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000 ), of which $133,000 was repaid in 2021 and the remaining amount repaid in 2023.

The Company recognized royalties of $7,000 and $0 from the licensee for the three months ended March 31, 2024 and 2023 , respectively.

Reportable Segments

The Company determines its reportable segments based upon the Company's chief operating decision maker managing the performance of the business.

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

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 Metaverse experience scouting and development business.

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

New Initiatives consists of Travelzoo’s licensing business, the Travelzoo META subscription service and MTE.

Financial information with respect to our business segments and certain financial information about geographic areas appears in Note 9–Segment Reporting and Significant Customer Information to the accompanying condensed consolidated financial statements included in this report.

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.

How We Generate Revenues

Revenues from the Travelzoo brand and business are generated primarily from advertising fees from two categories of revenue:

Travel and Local.

The “Travel” category consists of advertising or publishing revenues, primarily (a) listing fees paid by travel companies for the publishing of their offers on Travelzoo’s media properties and (b) commission from the sale of Getaways vouchers.

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.

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

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

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

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

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

The expiration dates of vouchers range between 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.

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

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

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

As of September 30, 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.

Revenues from the Travelzoo brand and business are generated primarily from three categories:

Advertising, Membership Fees, and Other.

The "Advertising" category consists primarily of (a) advertising fees paid by travel companies for the publishing of their offers on Travelzoo’s media properties, (b) commission generated from the sale of Getaways vouchers and bookings on our hotel platform, and (c) publishing fees from high-quality local businesses, sale of Local Deals vouchers and entertainment offers.

Advertising fees may be based on audience reach, placement in email newsletters or on media properties, number of listings, number of clicks, and/or actual sales.

We typically recognize advertising revenues upon delivery of emails or clicks, as tracked by our internal platform or third-party platforms, in the period of the applicable insertion orders, which are typically for periods between one month and twelve months and are not automatically renewed.

For Getaways vouchers, we recognize a percentage of the face value of vouchers upon sale as commission, net of an allowance for future refunds.

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

Revenues generated from local business offers are based upon a percentage of the face value of the vouchers sold, commission on actual sales or a listing fee based on audience reach.

We recognize revenue upon the sale of vouchers, upon notification of the amount of direct bookings or upon delivery of emails.

For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers, net of an allowance for refunds.

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

In the second quarter of 2020, due to the pandemic and various stay-at-home protocols, the Company expanded its voucher refund policy to fully refundable until the voucher expires or is redeemed by the customer.

This refund policy was reverted in April 2022 to a 14-day refund period from date of purchase, with a newly introduced option to extend refund eligibility until voucher redemption or expiration, for a surcharge.

The expiration dates of vouchers range between April 2024 through December 2025;

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

As of March 31, 2024 and December 31, 2023, the Company had approximately $4.5 million and $5.2 million of unredeemed vouchers that had been sold, respectively, representing the Company’s commission.

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

The Company estimated and recorded a refund reserve of $212,000 and $268,000 as of March 31, 2024 and December 31, 2023, respectively, for these unredeemed vouchers which is recorded as a reduction of revenues on the consolidated statements of operations, and accrued expense and other on the consolidated balance sheet.

Merchant payables of $17.8 million as of March 31, 2024 related to unredeemed vouchers is recorded on the consolidated balance sheet, representing amounts payable to merchants by the Company for vouchers sold but not redeemed.

merchant contracts, typically in foreign locations, allow the Company to retain the proceeds from unredeemed vouchers upon expiration.

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

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

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

We recognize revenue upon the sale of the vouchers, upon notification of the amount of direct bookings or upon delivery of the emails.

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

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

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

Jack’s Flight Club

Jack’s Flight Club revenue is generated from paid subscriptions by members.

Subscription options are quarterly, semi-annually, and annually.

We recognize the revenue monthly pro rata over the subscription period.

The "Membership Fees" category consists of subscription fees paid by Travelzoo, Jack's Flight Club, and Travelzoo META members.

Travelzoo® membership has historically been free, however, on January 1, 2024, Travelzoo introduced an annual membership fee of $40 (or local equivalent) for new members in the United States, Canada, United Kingdom and Germany, with the 2024 annual fee waived for existing members as of December 31, 2023.

Jack’s Flight Club subscription options are quarterly, semi-annually, and annually.

We recognize subscription revenues ratably over the respective subscription periods.

For Travelzoo META, a founding membership was launched in 2022 following a test-and-learn strategy.

The "Other" category consists of licensing fees from license agreements, as well as the retail business originally operated by MTE and acquired and maintained by the Company following the acquisition of MTE.

Trends in Our Business

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

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

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

A number of factors can influence whether current and new advertisers decide to advertise their offers with us.

We have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising, the relative condition of the economy, competition and the introduction of new methods of advertising, and the decline in consumer demand for vouchers and travel more generally.

A number of factors will have impact on our revenue, such as the reduction in spending by travel intermediaries due to their focus on improving profitability, the trend towards mobile usage by consumers, the willingness of consumers to purchase the deals we advertise, and the willingness of certain competitors to grow their business unprofitably.

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

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

We also 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 ).

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 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.

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

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.

We obtain additional members and activity on our websites by acquiring traffic from Internet search companies.

Our ability to generate revenues in the future depends on numerous factors, including those relating to members, advertisers, competitors, the travel industry, the online advertising business, internal factors and external factors.

Factors relating to members include their willingness to purchase the deals we advertise, their demand for vouchers as a promotional format, and with the introduction of membership fees for new members in 2024 and existing members in 2025, our ability to enroll new paying members and transition existing members to paid membership, without adversely affecting our membership base and existing advertising revenue streams.

Factors relating to advertisers include our ability to sell more advertising to existing and new advertisers, our ability to enhance our audience reach and advertising rates, spending controls by travel intermediaries to focus on improving profitability, and advertiser shifts from one advertising service (e.g.

Top 20 ) to another (e.g.

Local Deals and Getaways ).

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

Factors relating to competitors include the willingness of certain competitors to grow their business unprofitably.

Factors relating to the travel industry include lingering effects of the global pandemic, geopolitical tensions affecting consumer travel to certain regions, and risk of future unforeseeable macro events that impact travel, while factors relating to the online advertising business include shifts in consumer use of different digital media formats such as from desktop to mobile, from mobile web to mobile app, and from email to push notifications and SMS text messaging.

Internal factors include risks relating to our ability to continue to service members without interruption, our ability to develop and launch new products members will utilize and advertisers will adopt, and hiring and relying on key employees for the continued maintenance and growth of our business.

External factors include the introduction of new methods of advertising, the relative condition of the economy, cybersecurity risks due to increased dependence on digital technologies, and 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.

Revenues from local business 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 commission rate earned by us from the merchants for vouchers sold.

However, during the global pandemic, we saw an increase in demand by consumers for fully refundable travel options, which led to a slight reversal of this trend and an increase in the sale of Getaways hotel vouchers (although demand for restaurants and spas continued to be low).

With the ending of the pandemic, the importance of fully refundable travel options has decreased (and we also shifted to offering a surcharge for full refundability), and the trend is therefore returning to pre-pandemic patterns.

Our ability to continue generating revenues through advertising, commissions and subscriptions depends heavily upon our ability to maintain and grow an attractive audience for our publications.

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

We obtain additional members and activity on our websites by acquiring traffic from Internet search and social media companies.

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 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.

When funds are available for marketing spend, we are addressing this growing channel of our audience through increased marketing on social media channels.

However, we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue.

We believe that we can increase our advertising rates only if the reach of our publications increases.

We do not know if we will be able to increase the reach of our publications.

If we are able to increase the reach of our publications, we still may not be able to or want to increase rates given market conditions such as intense competition in our industry.

We have not had any significant rate increase in recent years due to intense competition in our industry.

Even if we increase our rates, the increased price may reduce the number of advertisers willing to advertise with us and, therefore, decrease our revenue.

With the introduction of membership fees in 2024we have been adjusting our user acquisition strategies whose timeframes to become effective are uncertain.

While we are initially reducing our expenditures on acquiring traffic as we test new strategies for efficacy, in time we plan to increase these expenditures to maintain or grow our membership, audience and the reach of our publications.

We continue to see a shift in users accessing our services through mobile devices and social media and, therefore, anticipate continuing to address this growing channel through additional investments in mobile app development.

We believe that an important factor for our advertising rates is the reach of our publications, however, we also believe that there are other important factors, such as the engagement of our membership base with our content.

We do not know if we will be able to increase the reach of our publications, particularly with the introduction of membership fees in 2024.

We do not know if by increasing the reach of our publications, we will also be able to increase engagement and other key metrics of importance to our advertisers.

If we are able to increase the reach of our publications, we still may not be able to or want to increase rates given market conditions, including intense competition in our industry.

Even if we increase our rates, the increased price may reduce the number of advertisers willing to advertise with us and could, therefore, decrease our revenue.

We may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue.

We do not know what our cost of revenues as a percentage of revenues will be in future periods.

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

Our cost of revenues may change in relation to volume and terms with third-party partners of the Travelzoo network, the incurrence of merchant processing fees from the sale of vouchers for Local Deals and Getaways and payment of membership fees, changes in refund request trends and provisioning of customer service.

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

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

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

In order to increase the reach of our publications, we have to acquire a significant number of new members in every quarter and continue to promote our brand.

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 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.

We may decide to accelerate our member acquisition, including through merger and acquisition activity, for various strategic and tactical reasons and, as a result, increase our marketing and other expenses.

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

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.

Changes in the average cost per acquisition of new members impacts our advertising expenses and sales and marketing expenses as a percentage of revenue, and are not readily predictable.

With the introduction of membership fees in 2024, we expect the cost of acquiring new paying members to increase significantly, as compared with the cost of acquiring non-paying members prior to 2024.

We are early in the development of new strategies to acquire paying members, so our test budgets have not yet fully scaled.

However, as we test new strategies and gain more learnings as to acquiring paying members, our expenditures may increase significantly.

We hope efficiencies we have gained through our testing will scale as well.

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

In addition to the type of membership offered, we believe the average cost per acquisition depends mainly on the advertising rates we pay for media buys, the quality of the members we acquire, our ability to manage our member acquisition efforts successfully, the regions we target to acquire new members and the relative costs for that region, and the degree of competition in our industry.

All else equal, increased competition may require us to increase advertising for our brand and advertisers’ deals.

Beside member acquisition costs, we may see a unique opportunity for a brand marketing campaign, experience increases in the cost of retaining or sourcing new advertiser clients, or change the number of personnel or compensation structure for the Sales and marketing function, any of which would result in an increase in sales and marketing expenses.

We expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter.

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

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.

We expect to adjust the level of such incremental spending during any given quarter based upon market conditions, as well as our performance in each quarter.

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

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

We expect to adjust the level of such incremental spending dynamically during any given quarter based upon market conditions, as well as our performance in each quarter.

We do not know what our product development expenses as a percentage of revenue will be in future periods.

We expect to increase investment in our products in connection with building out and refining the value proposition of the Travelzoo membership.

There may be fluctuations that have a material impact on our results of operations.

Product development changes may lead to reductions of revenue based on changes in presentation of our offerings to our audience.

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.

Product development changes may lead to reductions of revenue based on changes in receptivity of our offerings to our member audience and advertiser clients.

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

Increases in expense may result from costs related to third-party technology service providers and software licenses, headcount and the use of professional services.

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

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Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, foreign, federal, state and local tax law and regulations and changes thereto.

Our income taxes are also dependent on the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years' tax returns that result in adjustments, resolution of uncertain tax positions and different treatments for certain items for tax versus books.

We expect fluctuations in our income taxes from year to year and from quarter to quarter.

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

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

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

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

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.

Our income taxes are also dependent on the determination of whether valuation allowances for certain tax assets are required or not, any audits of prior years' tax returns that result in adjustments, resolution of uncertain tax positions and different treatments for certain items for tax versus book purposes.

We expect fluctuations in our income taxes from year to year and from quarter to quarter, which may be significant and have a material impact on our results of operations.

Due to the adverse effects of the global pandemic, the Company reduced expenditures in many areas, including but not limited to, marketing, technology and human resources.

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

The Company also renegotiated many of its outstanding contractual obligations with vendors and closed some ancillary office locations.

We do not currently anticipate that additional cost-cutting measures will be necessary.

In the foreseeable future, we anticipate relatively slow growth in fixed costs for our existing business, while investing in new initiatives where we see opportunities to expand our business, in aggregate, in-line with the trend of our revenues.

The key elements of our growth strategy include building our trusted travel, entertainment and local brands, refining and building out the value proposition of our membership and consequently increasing the value and engagement of our members, sourcing more exclusive and compelling offers from travel and entertainment partners, and innovating with new experiences and revenue streams.

We expect to continue our efforts to grow;

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We believe that we can sell more advertising if the market for online advertising continues to grow and if we can maintain or increase our market share.

We believe that the market for advertising continues to shift from offline to online.

We believe the market for advertising continues to shift from offline to online.

We do not know if we will be able to maintain or increase our market share.

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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,

2023 2022 2023 2022

Three Months Ended

Revenues 100.0 % 100.0 %

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Income from continuing operations 19.2 17.0

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

Loss from discontinued operations, net of taxes — —

Net income 19.2 17.0

4 unchanged sentences

Three Months Ended

September 30,

North America

13 unchanged sentences

Total members 2,404,000 1,980,000

Other locations 3,226,000 3,219,000

Total members (1) 30,973,000 30,538,000

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Social media followers 4,430,000 4,188,000

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

(1) Members represent individuals who receive one or more of our email publications.

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

(3) Annualized revenue divided by number of employees at the end of the quarter.

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

Travel revenue includes travel publications ( Top 20 , Travelzoo website, Standalone email newsletters, 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,

2023 2022 2023 2022

Travelzoo North America

Travel $ 12,751 $ 9,660 $ 40,349 $ 32,149

Local 657 830 1,950 2,410

Total Travelzoo North America revenues 13,408 10,490 42,299 34,559

Travelzoo Europe

Travel 5,650 4,230 16,746 13,926

Local 333 274 1,011 866

Total Travelzoo Europe revenues 5,983 4,504 17,757 14,792

Jack’s Flight Club 1,180 847 3,223 2,622

New Initiatives 28 8 49 18

Travelzoo Travel 18,401 13,890 57,095 46,075

Travelzoo Local 990 1,104 2,961 3,276

Jack’s Flight Club 1,180 847 3,223 2,622

New Initiatives 28 8 49 18

The following table sets forth the breakdown of revenues (in thousands) by category Advertising, Membership Fees, and Other.

Advertising includes travel publications ( Top 20 , Travelzoo website, Standalone email newsletters, Travelzoo Network ), Getaways vouchers, hotel platform, vacation packages, Local Deals vouchers and entertainment offers (vouchers and direct bookings).

Membership Fees includes subscription fees paid by Travelzoo, Jack’s Flight Club and Travelzoo META members.

Other includes licensing fees from license agreements and the retail business acquired with MTE.

Three Months Ended

Advertising $ 20,850 $ 20,645

Membership Fees 1,104 948

Total revenues $ 21,985 $ 21,601

Travelzoo North America

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 $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 $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 $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 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 $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 $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.

Jack’s Flight Club

Travelzoo acquired 60% of the Shares of Jack’s Flight Club on January 13, 2020.

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 $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

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 and development business to support Travelzoo META.

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.

Advertising revenue increased $205,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023.

This increase was primarily due to $746,000 increase in Hotel commission and $302,000 increase in revenues from Travelzoo Network, offset partially by $809,000 decrease in revenues from Top 20 and Standalone.

Membership Fees

Revenues from Membership fees increased $156,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 due to the increase of subscription fees paid by Travelzoo and Jack's Flight Club members.

Revenues from Other increased $23,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to $14,000 revenue increase from retail and fashion business and $9,000 increase in licensing revenue.

Cost of Revenues

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network , amortization of capitalized website development costs, 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 $2.7 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.

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network , amortization of capitalized website development costs, software and license expenses, 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 $2.6 million and $2.7 million, respectively, for the three months ended March 31, 2024 and 2023.

Cost of revenues decreased $51,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to the decrease of software and license expenses.

Operating Expenses

Sales and Marketing

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 $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.

Sales and marketing expenses were $8.6 million and $9.3 million for the three months ended March 31, 2024 and 2023, 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, 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.

For the three months ended March 31, 2024 and 2023, advertising expenses accounted for 10% and 25%, 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 $1.3 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.

Sales and marketing expenses decreased $698,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023.

The decrease was primarily due to $1.5 million decrease in member acquisition costs as a result of management's strategic plan, offset partially by $350,000 increase in salary and related expenses, $161,000 increase in trade and brand marketing expenses and $154,000 increase in marketing professional service 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 $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.

Product development expenses were $566,000 and $490,000 for the three months ended March 31, 2024 and 2023, respectively.

Product development expenses increased $76,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to the increase in salary and related expenses.

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 $4.5 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.

General and administrative expenses were $4.6 million and $4.4 million for the three months ended March 31, 2024 and 2023, respectively.

General and administrative expenses increased $177,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to the increase in professional service expenses.

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 $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.

Other income, net was $139,000 and $350,000, respectively, for the three months ended March 31, 2024 and 2023.

Other income, net decreased $211,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to $90,000 decrease in sublease income as the result of the sublease term expiration in 2023 and $72,000 decrease in interest income as the result of Azzurro's repayment of $3.0 million principal of its Notes Receivable in 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 $1.0 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.

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

Income tax expense was $1.5 million and $1.4 million, respectively, for the three months ended March 31, 2024 and 2023.

Our effective tax rate from continuing operations was 26% and 27%, respectively, for the three months ended March 31, 2024 and 2023.

The Company’s effective tax rate for the three months ended March 31, 2024 changed from the three months ended March 31, 2023 primarily due to a decrease in certain non-deductible expenses in the three months ended March 31, 2024.

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

See Note 7–Income Taxes to the accompanying condensed consolidated financial statements for further information.

We do not know what our income taxes will be in future periods.

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Travelzoo North America

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

2023 2022 2023 2022

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 14,228 $ 14,758

1 unchanged sentence

Operating profit as a % of revenue 31.2 % 30.6 %

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.

North America revenues decreased by $530,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023.

This decrease was primarily due to $1.3 million decrease in revenues from Top 20 and Standalone, offset partially by $437,000 increase in Hotel commission and $302,000 increase in revenues from Travelzoo Network.

North America expenses decrease by $452,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023.

The decrease was primarily due to $910,000 decrease in member acquisition costs, offset partially by $552,000 increase in professional service expenses.

Travelzoo Europe

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

2023 2022 2023 2022

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 6,662 $ 5,887

1 unchanged sentence

Operating profit as a % of revenue 20.7 % 7.8 %

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 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.

Europe revenues increased by $775,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023.

The increase was primarily due to $548,000 increase in Advertising revenues and $227,000 positive impact from foreign currency movements relative to the U.S.

The increase in Advertising revenue of $548,000 was primarily due to the increase in revenues from Top 20 and Standalone .

Eur ope expenses decreased by $150,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to $608,000 decrease in member acquisition costs, offset partially by $365,000 increase in salary and headcount related expenses and $82,000 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 $66,000 for the nine months ended September 30, 2023.

dollar positively impacted our local currency income from our operations in Europe by approximately $63,000 for the three months ended March 31, 2024.

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.

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

Jack ’ s Flight Club

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

2023 2022 2023 2022

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 1,063 $ 948

1 unchanged sentence

Operating profit (loss) as a % of revenue (9.3) % (4.7) %

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.

Jack ’ s Flight Club revenues increased by $115,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 due to the increase of premium members.

Jack’s Flight Club expenses in creased by $169,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to $78,000 increase in software expenses and $47,000 increase in advertising and marketing expenses.

New Initiatives

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

2023 2022 2023 2022

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 32 $ 8

Operating profit (loss) $ (130) $ (217)

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

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.

New Initiatives segment primarily consists of Travelzoo licensing business, Travelzoo META subscription service, Metaverse experience scouting and development business and retail and fashion business acquired with MTE.

New Initiatives revenues increased $24,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to $14,000 revenue increase from retail and fashion business and $9,000 increase in licensing revenue.

New Initiatives segment expenses decreased by $63,000 for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to decrease in salary and related expenses.

Liquidity and Capital Resources

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.

As of March 31, 2024, we had $16.2 million in cash and cash equivalents, of which $11.0 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 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.

as of March 31, 2024.

Cash, cash equivalents and restricted cash increased $476,000 from $16.4 million as of December 31, 2023 to $16.9 million as of March 31, 2024 primarily due to $4.6 million cash provided by operating activities, offset partially by $3.9 million cash used to repurchase common stock.

As of March 31, 2024 , we had merchant payables of $17.8 million related to unredeemed vouchers.

In the Company’s financial statements presented in this 10-Q report, following U.S.

generally accepted accounting principles (“GAAP”), we classified all merchant payables as current.

When all merchant payables are classified as current, there is negative net working capital (which is defined as current assets minus current liabilities) of $1.9 million .

Payables to merchants are generally due upon redemption of vouchers.

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 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.

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

The vouchers expire between April 2024 through December 2025;

however 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.

Based on current projections of redemption activity, we expect that cash on hand as of March 31, 2024 will be sufficient to provide for working capital needs for at least the next twelve months.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Net cash provided by (used in) operating activities $ 9,293 $ (20,849)

Net cash provided by operating activities $ 4,621 $ 535

Net cash used in investing activities (35) (72)

Net cash provided by (used in) financing activities (12,065) 761

Net cash used in financing activities (3,872) (186)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (238) 171

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 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 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.

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.

Our capital requirements depend on a number of factors, including market acceptance of our products and services, the amount of our resources we devote to the development of new products, cash payments related to former shareholders of Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of the Travelzoo brand.

Since the inception of the voluntary program under which we make cash payments to people who establish that they were former shareholders of Netsurfers, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period, we have incurred expenses of $2.9 million.

While future payments for this program are expected to decrease, the total cost of this voluntary program is still undeterminable because it is dependent on our stock price and on the number of valid requests ultimately received.

Consistent with our growth, we have experienced fluctuations in our cost of revenues, sales and marketing expenses and our general and administrative expenses, including increases in product development costs, and we anticipate that these increases will continue for the foreseeable future.

Net increase in cash, cash equivalents and restricted cash $ 476 $ 448

Net cash provided by operat ing activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

Net cash provided by operating activities for the three months ended March 31, 2024 was $4.6 million, which primarily consisted of net income of $4.2 million and $433,000 increase in non-cash items, offset partially by $37,000 decrease in cash from changes in operating assets and liabilities.

Adjustments for non-cash items primarily consisted of $383,000 for depreciation and amortization and $95,000 for stock-based compensation, offset partially by $33,000 net recoveries of accounts receivable and refund reserves.

The decrease in cash from changes in operating assets and liabilities was primarily due to $2.7 million decrease in merchant payables and $235,000 increase in accounts receivables, offset partially by $1.2 million increase in deferred revenue, $1.0 million increase in accounts payable and $582,000 million decrease in prepaid expenses, deposits and other.

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.

Cash paid for income tax, net of refunds received, during the three months ended March 31, 2024 and 2023 was $548,000 and $74,000, respectively.

Net cash used in investing activities for the three months ended March 31, 2024 and 2023 was $35,000 and $72,000, respectively.

The cash used in investing activities for the three months ended March 31, 2024 and 2023 was primarily consisted of purchases of property and equipment.

Net cash used for financing activities for the three months ended March 31, 2024 and 2023 was $3.9 million and $186,000, respectively.

The cash used in financing activities was for the repurchase of common stocks.

Consistent with our growth, we have experienced fluctuations in our cost of revenues, sales and marketing expenses, product development expenses and general and administrative expenses, and we anticipate that these increases will continue for the foreseeable future.

We believe cash on hand will be sufficient to pay such costs for at least the next twelve months.

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.

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.

If we sell additional equity or convertible debt securities, the sale could dilute the ownership of our existing shareholders.

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

Although we currently believe 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 advertising formats may require us to sell additional equity or debt securities or establish credit facilities to raise capital in order to meet our capital requirements.

If we sell additional equity or convertible debt securities, such sale could dilute the ownership of our existing stockholders.

If we issue debt securities or establish a new credit facility, our fixed obligations could increase and we may be required to agree to operating covenants that would restrict our operations.

We cannot be sure that any such financing will be available in amounts or on terms acceptable to us.

If the development of our business is less favorable than expected, we may decide to significantly reduce the size of our operations and marketing expenses in certain markets with the objective of reducing cash outflow.

The information set forth under “Note 4:

Commitments and Contingencies” and “Note 11:

Leases” to the accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this report is incorporated herein by reference.

The information set forth unde r “Note 6— Commitments and Contingencies ” and “Note 11— Leases ” to the accompanying condensed consolidated financial statements included in this report.

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 $23.2 million as of September 30, 2023.

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $24.7 million as of March 31, 2024.

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

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Actual results may differ from our estimates under different assumptions or conditions.

Our critical accounting policies include revenue recognition, reserve for member refunds, allowance for doubtful accounts, income taxes and loss contingencies.

Our critical accounting policies include income taxes.

For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2023 as well as updates in the current fiscal year provided in “Note 1 Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements.

4 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