TRAVELZOO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations, assumptions, estimates and projections about Travelzoo and our industry. These forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results, performance or achievements of Travelzoo to be different from those expected or anticipated in the forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may”, “will”, “should”, “estimates”, “predicts”, “potential”, “continue”, “strategy”, “believes”, “anticipates”, “plans”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements. Travelzoo’s actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed elsewhere in this report in the section entitled “Risk Factors” and the risks discussed in our other SEC filings. The forward-looking statements included in this report reflect the beliefs of our management on the date of this report. 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. Overview We are a global Internet media company. We operate Travelzoo ®, the club for travel enthusiasts, Jack’s Flight Club ®, a subscription service that provides information about exceptional airfares, and Travelzoo META . We reach 30 million travelers. Club Members, who pay a membership fee, receive Club Offers negotiated and rigorously vetted by our deal experts around the globe. Travelzoo membership has historically been free, however, beginning in 2024, new members in the United States, Canada, United Kingdom and Germany were charged an annual fee of $40 (or local equivalent), with the 2024 annual fee waived for existing members as of December 31, 2023. On January 1, 2026, we increased the annual membership fee to $50 in the United States for new members. For existing members, the new pricing is applied from the next renewal of their membership after February 1, 2026. On April 1, 2026, we increased the annual membership fee to €40 in Germany for new members. For existing members, the new pricing is applied from the next renewal of their membership after May 1, 2026. For any subscription revenue derived from the paid membership, we recognize revenue monthly pro rata over the subscription period. We also license Travelzoo products, services and intellectual property to licensees 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. Under the licensing agreements, existing Travelzoo members in the applicable territories continue to be owned by the Company. 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 the U.S. and Canada. Travelzoo Europe consists of the Company’s operations in France, Germany, Spain and the U.K. 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, Travelzoo META, 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 Travelzoo Revenues are generated primarily from three categories: Advertising and Commerce, Membership Fees, and Other. 22 The “ Advertising and Commerce ” category consists primarily of (a) advertising fees paid by travel companies for the publishing of their offers on Travelzoo ’s media properties, (b) commissions and revenues 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 number 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. As of June 30, 2026 and December 31, 2025, the Company had approximately $2.7 million and $2.9 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 $118,000 and $188,000 as of June 30, 2026 and December 31, 2025, respectively, for these unredeemed vouchers which is recorded as a reduction of revenues on the condensed consolidated statements of operations, and accrued expense and other on the condensed consolidated balance sheet. Merchant payables of $10.7 million as of June 30, 2026 related to unredeemed vouchers is recorded on the condensed consolidated balance sheet, representing amounts payable to merchants by the Company for vouchers sold but not redeemed. Certain 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. In certain scenarios, the Company will pre-purchase vouchers or hotel inventory (in the form of credit amounts, vouchers or gift cards) in bulk from clients and partners (e.g., hotel or spa partners). In those scenarios, the Company is not acting as the agent, but rather as the principal. The pre-purchased vouchers are recorded as inventory, within prepaid expenses and other on the condensed consolidated balance sheet until sold to and purchased by Travelzoo members, at which point, the amount for which the vouchers were sold to Travelzoo members is recognized fully as revenue and the amount for which the vouchers were purchased from the hotel or spa partners is recognized as cost of revenues. The “ Membership Fees ” category consists of subscription fees paid by Travelzoo Club Members and Jack's Flight Club Premium members. Travelzoo membership has historically been free, however, on January 1, 2024, the Company 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. On January 1, 2026, we increased the annual membership fee to $50 in the United States for new members, For existing members, the new pricing is applied from the next renewal of their membership after February 1, 2026. On April 1, 2026, we increased the annual membership fee to €40 in Germany for new members. For existing members, the new pricing is applied from the next renewal of their membership after May 1, 2026. Jack’s Flight Club subscription options are quarterly, semi-annually, and annually. We recognize subscription revenues ratably over the respective subscription periods. The “ Other ” category consists of licensing fees from license agreements, and revenue generated from MTE, including but not limited to sales from the retail business originally operated by MTE and acquired and maintained by the Company following the acquisition of MTE. Trends in Our Business The Company’s ability to grow revenues depends heavily upon the ability to maintain and grow the number of Travelzoo members and Jack’s Flight Club members. The costs to market our membership have had, and we expect will continue to have, a significant impact on our financial results and can vary from period to period. 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 (based on both clicks and purchases through Travelzoo ), our ability to manage our member acquisition efforts successfully, the regions we target to acquire new members and the relative costs for those regions, and the degree of competition in our industry. 23 Results of Operations 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, 2026 2025 2026 2025 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 30.6 21.6 26.0 19.8 Gross profit 69.4 78.4 74.0 80.2 Operating expenses: Sales and marketing 59.2 48.1 52.3 46.1 Product development 2.6 2.9 2.7 2.8 General and administrative 19.5 18.8 17.6 18.7 Total operating expenses 81.3 69.8 72.6 67.6 Operating income (loss) (11.9) 8.6 1.4 12.5 Other income, net 1.2 0.7 0.6 1.7 Income (loss) from operations before income taxes (10.7) 9.3 2.0 14.2 Income tax expense (benefit) (1.6) 3.1 1.2 4.1 Net income (loss) (9.1) 6.2 0.8 10.1 Net income attributable to non-controlling interest 0.1 0.3 0.1 0.4 Net income (loss) attributable to Travelzoo (9.2) % 5.9 % 0.7 % 9.7 % Revenues The following table sets forth the breakdown of revenues (in thousands) by category Advertising and Commerce, 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 Club Members and Jack’s Flight Club Premium members. Other includes licensing fees from license agreements and the retail business acquired with MTE. Three Months Ended Six Months Ended June 30, June 30, 2026 2025 2026 2025 Advertising and Commerce $ 18,203 $ 20,874 $ 37,891 $ 41,554 Membership Fees 4,988 3,013 9,556 5,456 Other 17 19 34 36 Total revenues $ 23,208 $ 23,906 $ 47,481 $ 47,046 Advertising and Commerce Advertising and Commerce revenue decreased by $2.7 million for the three months ended June 30, 2026 from the three months ended June 30, 2025 . This decrease was primarily driven by selling less advertising insertion orders, as the Company prioritized the sale of memberships. Advertising and Commerce revenue decreased by $3.7 million for the six months ended June 30, 2026 from the six months ended June 30, 2025 . This decrease was primarily driven by selling less advertising insertion orders, as the Company prioritized the sale of memberships. Membership Fees Revenues from Membership Fees increased $2.0 million for the three months ended June 30, 2026 from the three months ended June 30, 2025 due to the increase in paying members. 24 Revenues from Membership Fees increased $4.1 million for the six months ended June 30, 2026 from the six months ended June 30, 2025 due to the increase in paying members. Other Revenues from Other remained flat for the three and six months ended June 30, 2026 and 2025. Cost of Revenues Cost of revenues consists primarily of network expenses related to powering the Company's websites, database services, sending e-mails, amortization of capitalized website development costs, software and license expenses, publishing fees to partners of the Travelzoo Network , costs incurred upon the sale of pre-purchased vouchers and other products, including directly attributable member services (call center), cost of certain membership benefits that are considered integral to the contractual obligation to Club Members, and fees to payment processors. Cost of revenues was $7.1 million and $5.2 million, respectively, for the three months ended June 30, 2026 and 2025. Cost of revenues was $12.3 million and $9.3 million, respectively, for the six months ended June 30, 2026 and 2025. Cost of revenues increased $1.9 million for the three months ended June 30, 2026 from the three months ended June 30, 2025 primarily due to the increase in costs recognized upon the sale of pre-purchased vouchers. Cost of revenues increased $3.0 million for the six months ended June 30, 2026 from the six months ended June 30, 2025 primarily due to the increase in costs recognized upon the sale of pre-purchased vouchers. 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, marketing professional service costs, public relations expenses and facilities costs. Sales and marketing expenses were $13.7 million and $11.5 million for the three months ended June 30, 2026 and 2025, respectively. Sales and marketing expenses were $24.9 million and $21.7 million for the six months ended June 30, 2026 and 2025, respectively. Advertising expenses consis t primarily of online advertising which we refer to as traffic acquisition costs and member acquisition costs. For the three months ended June 30, 2026 and 2025, advertising expenses accounted for 40% and 25%, respectively, of the total sales and marketing expenses. For the six months ended June 30, 2026 and 2025, advertising expenses accounted for 32% and 20%, 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 platforms. Sales and marketing expenses increased $2.2 million for the three months ended June 30, 2026 from the three months ended June 30, 2025. The increase was primarily due to the increase in member acquisition costs as a result of management's strategic plan. Sales and marketing expenses increased $3.2 million for the six months ended June 30, 2026 from the six months ended June 30, 2025 . The increase was primarily due to the increase in member acquisition costs as a result of management's strategic plan. 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 $602,000 and $698,000 for the three months ended June 30, 2026 and 2025, respectively. Product development expenses were $1.3 million for the six months ended June 30, 2026 and 2025, respectively. Product development expenses decreased $96,000 for the three months ended June 30, 2026 from the three months ended June 30, 2025 primarily due to the decrease in professional services costs . Product development expenses remained flat for the six months ended June 30, 2026 and 2025 . 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 25 office expense and facilities costs. General and administrative expenses were $4.5 million for the three months ended June 30, 2026 and 2025, respectively. General and administrative expenses were $8.3 million and $8.8 million for the six months ended June 30, 2026 and 2025, respectively. General and administrative expenses remained flat for the three months ended June 30, 2026 from the three months ended June 30, 2025 . General and administrative expenses decreased $464,000 for the six months ended June 30, 2026 from the six months ended June 30, 2025 primarily due to a $251,000 decrease in payroll expenses and a $248,000 decrease in bad debt. Other Income, net Other income, net consisted primarily of foreign exchange transaction gains and losses, sublease income, German federal government funding for COVID-related pandemic relief, interest income and interest expense. Other income, net was $274,000 and $161,000, for the three months ended June 30, 2026 and 2025, respectively. Other income, net was $270,000 and $790,000, for the six months ended June 30, 2026 and 2025, respectively. Other income, net increased $113,000 for the three months ended June 30, 2026 from the three months ended June 30, 2025 primarily due to $258,000 in write-offs from previously collected but unapplied media fees from clients, partially offset by a $164,000 decrease in foreign exchange transaction loss. Other income, net decreased $520,000 for the six months ended June 30, 2026 from the six months ended June 30, 2025 primarily due to a $210,000 release of JFC VAT liabilities after a four-years statute of limitations and a $179,000 German federal government funding for COVID-19 pandemic relief the Company received and the foreign exchange transactions gains during the six months ended June 30, 2025. Income Taxes Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflects federal, state and country statutory rates applicable to our worldwide income. Income tax expense (benefit) was $(382,000) and $740,000, respectively, for the three months ended June 30, 2026 and 2025. Our effective tax rate from continuing operations was 15% and 33%, respectively, for the three months ended June 30, 2026 and 2025. The Company’s effective tax rate for the three months ended June 30, 2026 changed from the three months ended June 30, 2025 primarily due to the decrease in operating profit and an increase to interest expense for the uncertain tax position in the three months ended June 30, 2026. Income tax expense was $0.6 million and $1.9 million, respectively, for the six months ended June 30, 2026 and 2025. Our effective tax rate from continuing operations was 59% and 29%, respectively, for the six months ended June 30, 2026 and 2025. The Company’s effective tax rate for the six months ended June 30, 2026 changed from the six months ended June 30, 2025 primarily due to a decrease in operating profit in the six months ended June 30, 2026 and an increase in interest expense associated with uncertain tax positions. 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 5–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. There may be fluctuations that have a material impact on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether valuation allowances for certain tax assets are required or not, audits of prior years’ tax returns resulting in adjustments, resolution of uncertain tax positions and different treatment for certain items for tax versus book purposes. We expect fluctuations in our income taxes from year to year and from quarter to q uarter. Some of the fluctuations may be significant and have a material impact on our results of operations. 26 Travelzoo North America Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 (In thousands) (In thousands) Revenues $ 15,679 $ 16,132 $ 31,348 $ 31,260 Operating profit (loss) $ (1,494) $ 2,818 $ 1,753 $ 6,412 Operating profit (loss) as a % of revenue (9.5) % 17.5 % 5.6 % 20.5 % North America revenues decreased by $453,000 for the three months ended June 30, 2026 from the three months ended June 30, 2025. This decrease was primarily due to the decrease in advertising email revenue partially offset by the increase in paid Membership Fees and Getaways vouchers . North America expenses increased by $3.9 million for the three months ended June 30, 2026 from the three months ended June 30, 2025. The increase was primarily due to a $1.9 million increase in cost of revenue related to purchase of vouchers and gift cards which were sold during the three months ended June 30, 2026 and a $1.8 million increase in member acquisition costs. North America revenues remained flat for the six months ended June 30, 2026 and 2025. North America expenses increased by $4.7 million for six months ended June 30, 2026 from the six months ended June 30, 2025. The increase was primarily due to a $2.8 million increase in cost of revenue related to purchase of vouchers and gift cards and a $2.0 million increase in member acquisition costs. Travelzoo Europe Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 (In thousands) (In thousands) Revenues $ 6,237 $ 6,385 $ 13,513 $ 13,097 Operating loss $ (1,199) $ (883) $ (920) $ (655) Operating loss as a % of revenue (19.2) % (13.8) % (6.8) % (5.0) % Europe revenues decreased by $148,000 for the three months ended June 30, 2026 from the three months ended June 30, 2025. The decrease was primarily due to the decrease in advertising email revenue partially offset by the increase in paid Membership Fees and Getaways vouchers . Eur ope expenses increased by $168,000 for the three months ended June 30, 2026 from the three months ended June 30, 2025 primarily due to a $330,000 increase in member acquisition costs, offset by a $161,000 decrease in salary and related expenses. Europe revenues increased by $416,000 for the six months ended June 30, 2026 from the six months ended June 30, 2025. The increase was primarily due to the increase in paid Membership Fees and Getaway vouchers. Eur ope expenses increased by $681,000 for the six months ended June 30, 2026 from the six months ended June 30, 2025 primarily due to a $738,000 increase in member acquisition costs, offset by a $269,000 decrease in salary and related expenses. Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $22,000 and $42,000 for the three months ended June 30, 2026 and 2025, respectively. Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by approximately $68,000 and $11,000 for the six months ended June 30, 2026 and 2025 , respectively. Jack ’ s Flight Club Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 (In thousands) (In thousands) Revenues $ 1,275 $ 1,370 $ 2,586 $ 2,653 Operating profit (loss) $ (34) $ 156 $ (82) $ 168 Operating profit (loss) as a % of revenue (2.7) % 11.4 % (3.2) % 6.3 % Jack ’ s Flight Club revenues decreased by $95,000 for the three months ended June 30, 2026 from the three months ended June 30, 2025 due to the decrease in subscription fees paid by the members. Jack’s Flight Club expenses in creased by $95,000 27 for the three months ended June 30, 2026 from the three months ended June 30, 2025 primarily due to the increase in employee and contractor costs . Jack ’ s Flight Club revenues decreased by $67,000 for the six months ended June 30, 2026 from the six months ended June 30, 2025 due to the decrease in subscription fees paid by the members. Jack’s Flight Club expenses in creased by $183,000 for the six months ended June 30, 2026 from the six months ended June 30, 2025 primarily due to the increase in employee and contractor costs . New Initiatives Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 (In thousands) (In thousands) Revenues $ 17 $ 19 $ 34 $ 36 Operating loss $ (35) $ (31) $ (69) $ (61) New Initiatives segment primarily consists of Travelzoo licensing business, Travelzoo META, Metaverse experience scouting and development business and the retail and fashion business acquired with MTE. Liquidity and Capital Resources As of June 30, 2026, we had $6.8 million in cash and cash equivalents, of which $5.4 million was held outside the U.S. in our foreign operations. If this cash is distributed to the U.S., we may be subject to additional foreign withholding taxes in certain circumstances. We also had $754,000 in restricted cash held in the U.S. and U.K. as of June 30, 2026. Cash, cash equivalents and restricted cash decreased $3.2 million from $10.8 million as of December 31, 2025 to $7.6 million as of June 30, 2026, primarily due to $5.2 million cash used to repurchase common stock, partially offset by $2.2 million cash provided by operating activities. As of June 30, 2026 , we had merchant payables of $10.7 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 $14.3 million . Payables to merchants are generally due upon redemption of vouchers. As of June 30, 2026, unredeemed vouchers have maturities through June 2027; however, expiration dates may be extended on a case-by-case basis and final payment to merchants upon expiration may not be due for up to a year after. Based on current projections of redemption activity, we expect that cash on hand as of June 30, 2026 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: Six Months Ended June 30, 2026 2025 (In thousands) Net cash provided by operating activities $ 2,186 $ 4,582 Net cash used in investing activities (14) (34) Net cash used in financing activities (5,206) (11,522) Effect of exchange rate changes on cash, cash equivalents and restricted cash (137) 432 Net increase (decrease) in cash, cash equivalents and restricted cash $ (3,171) $ (6,542) Net cash provided by 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, 2026 was $2.2 million, which primarily consisted of net income of $392,000, a $18,000 decrease in non-cash items and a $1.8 million increase in cash from changes in operating assets and liabilities. Adjustments for non-cash items primarily consisted of $753,000 decrease in deferred income tax offset partially by a $719,000 for stock based compensation expenses. The increase in cash from changes in operating assets and liabilities was primarily due to a $4.1 million increase in deferred revenue and $1.7 million increase in accrued expenses, offset partially by a $3.9 million decrease in accounts receivable. Cash paid for income tax, net of refunds received, during the six months ended June 30, 2026 and 2025 was $560,000 and $2.7 million, respectively. 28 Net cash used in investing activities for the six months ended June 30, 2026 and 2025 was $14,000 and $34,000, respectively. The cash used in investing activities for the six months ended June 30, 2026 consisted of purchases of property and equipment. 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. The information set forth unde r “Note 4— Commitments and Contingencies ” and “Note 10— 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. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those that we believe are important in the preparation of our condensed consolidated financial statements because they require that we use judgment and estimates in applying those policies. Preparation of the condensed consolidated financial statements and accompanying notes requires that we make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our critical accounting policies include income taxes. For additional information about our critical accounting policies and estimates and recent accounting pronouncements, see the disclosure included in our Annual Report on Form 10-K for the year ended December 31, 2025 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. 29 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.