What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-08 · 104 added, 200 removed, 195 unchanged (61% of the section changed)

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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.

Travelzoo reaches 30 million travelers.

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.

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In each case, the Company is entitled to a quarterly royalty payment based on a percentage of net revenue.

The Company recognized $18,000 in royalties in each of the three months ended September 30, 2024 and 2023.

The Company recognized $53,000 and $39,000 in royalties in the nine months ended September 30, 2024 and 2023, respectively.

The Company recognized $17,000 in royalties in each of the three months ended March 31, 2025 and 2024.

Under the licensing agreements, Travelzoo's existing member list in the applicable territories continues 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 metaverse travel experiences.

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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

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

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

APAC Licensing

Travelzoo currently has license agreements covering Australia, Japan, New Zealand, Singapore, 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 each jurisdiction in exchange for quarterly royalty payments based upon net revenue over a five-year term, with an option to renew.

The Company recognized royalties o f $11,000 and $9,000 from the licensee for the three months ended September 30, 2024 and 2023, respectively.

The Company recognized royalties o f $32,000 and $26,000 from the licensee for the nine months ended September 30, 2024 and 2023 , respectively.

The Company recognized royalties o f $10,000 from the licensee for each of the three months ended March 31, 2025 and 2024, 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 five-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 o f $7,000 and $9,000 from the licensee for the three months ended September 30, 2024 and 2023, respectively.

The Company recognized royalties o f $21,000 and $13,000 from the licensee for the nine months ended September 30, 2024 and 2023 , respectively.

The Company recognized royalties o f $7,000 from the licensee for each of the three months ended March 31, 2025 and 2024, respectively.

Reportable Segments

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The Company currently has four reportable operating segments:

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

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.

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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.

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.

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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 global 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 October 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 September 30, 2024 and December 31, 2023, the Company had approximately $4.3 million and $5.2 million of unredeemed vouchers that had been sold, respectively, representing the Company’s commission.

As of March 31, 2025 and December 31, 2024, the Company had approximately $3.7 million and $4.1 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 $142,000 and $268,000 as of September 30, 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 $17.3 million as of September 30, 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.

The Company estimated and recorded a refund reserve of $214,000 and $139,000 as of March 31, 2025 and December 31, 2024, 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 $14.8 million as of March 31, 2025 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.

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.

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

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 and Jack's Flight Club 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.

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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.

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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.

Factors relating to advertisers include our ability to sell more advertising to existing and new advertisers, our ability to enhance our audience reach, engagement and advertising rates (particularly as we transition to a paid membership model) and spending controls by travel intermediaries to focus on improving profitability.

As we build out our offering of Club Offers (offers available only to Club Members, or members who have paid the membership fee), we must balance maintaining the advertising business while working with our advertisers to also provide us these offers exclusively for paying members.

Factors relating to competitors include the willingness of certain competitors to grow their business unprofitably and willingness to utilize new technologies such as artificial intelligence (“AI”) to provide lower quality content at greater volumes.

Factors relating to the travel industry include geopolitical tensions affecting consumer travel to certain regions, the imposition or threat of tariffs, immigration issues, 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 that members will utilize and advertisers will adopt (such as Club Offers), 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 (including risks of recession), 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.

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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.

With the introduction of membership fees in 2024, we 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.

With the introduction of membership fees in 2024, we have been adjusting our member acquisition strategies to ensure that we pursue a strategy of efficient growth.

While we initially reduced our expenditures on acquiring members as we tested new strategies for efficacy, we have now increased and plan to further increase these expenditures to grow our paid membership and engagement with our products.

We do not know if we will be able to continue efficiently growing through member acquisition.

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

We do not know if we will be able to increase engagement, however, early signs indicate that on average paying members are more engaged than members who have not paid a fee.

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

As we make this transition, we may need to decrease our rates based on competitive market conditions and the performance of our audience.

However, as we

increase member acquisition, we expect that a greater proportion of our revenue will be driven by membership revenue, as opposed to advertising 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 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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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.

We have found efficiencies in member acquisition gained through careful testing and optimizing throughout 2024 and we hope that we will be able to continue to scale.

However, in the future, 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 (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 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.

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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.

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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.

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

We do not know if we will be able to increase the number of our advertisers in the future.

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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,

2024 2023 2024 2023

Three Months Ended

Revenues 100.0 % 100.0 %

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Income tax expense 5.1 6.8

Income from continuing operations 16.2 11.7 16.5 13.9

Income from discontinued operations, net of taxes — — — —

Net income 14.1 19.2

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Net income attributable to Travelzoo 13.7 % 19.3 %

Operating Metrics

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

Three Months Ended

September 30,

North America

Total members (1) 15,805,000 16,340,000

Average cost per acquisition of a new member $ 2.27 $ 2.78

Revenue per member (2) $ 3.38 $ 3.47

Revenue per employee (3) $ 458,000 $ 434,000

Mobile application downloads 4,220,000 4,158,000

Social media followers 3,323,000 3,265,000

Total members (1) 9,056,000 9,302,000

Average cost per acquisition of a new member $ 2.97 $ 3.71

Revenue per member (2) $ 2.70 $ 2.62

Revenue per employee (3) $ 249,000 $ 243,000

Mobile application downloads 2,409,000 2,356,000

Social media followers 1,012,000 898,000

Jack's Flight Club

Total members 2,081,000 2,325,000

Other locations 3,172,000 3,221,000

Total members (1) 30,114,000 31,188,000

Average cost per acquisition of a new member $ 2.53 $ 3.15

Revenue per member (2) $ 2.80 $ 2.71

Revenue per employee (3) $ 362,000 $ 352,000

Mobile application downloads 7,736,000 7,524,000

Social media followers 4,336,000 4,163,000

(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 Advertising, Membership Fees, and Other.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

Three Months Ended

Advertising $ 20,680 $ 20,850

Membership Fees 2,443 1,104

Other 33 18 87 39

Total revenues $ 23,140 $ 21,985

Advertising revenue decreased $772,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023.

This decrease was primarily due to $447,000 decrease in revenues from Top 20 and Standalone and $221,000 decrease in revenues from the sale of Getaways vouchers.

Advertising revenue decreased $630,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

This decrease was primarily due to $1.9 million decrease in revenues from Top 20 and Standalone, offset partially by $1.1 million increase in Hotel commission.

Advertising revenue decreased by $170,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024 .

This decrease was primarily driven by $603,000 decrease in revenues from Travelzoo website (CPC) and $277,000 decrease in revenues from our hotel platform.

These decreases were partially offset by a $729,000 increase in Standalone email newsletter revenue.

Membership Fees

Revenues from Membership fees increased $256,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 due to the increase of subscription fees paid by Travelzoo and Jack's Flight Club members.

Revenues from Membership fees increased $478,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 due to the increase of subscription fees paid by Travelzoo and Jack's Flight Club members.

Revenues from Other increased $15,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase from the retail and fashion business.

Revenues from Other increased $48,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase in licensing revenue.

Revenues from Membership fees increased $1.3 million for the three months ended March 31, 2025 from the three months ended March 31, 2024 due to the increase of subscription fees paid by Travelzoo and Jack's Flight Club members.

Revenues from Other decreased $14,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024 primarily due to the decrease revenue from the retail and fashion business.

Cost of Revenues

Cost of revenues consists primarily of network expenses, including fees we pay for co-location services and depreciation and maintenance of network equipment, payments made to third-party partners of the Travelzoo Network , amortization of capitalized website development costs, software 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 $2.5 million and $2.7 million, respectively, for the three months ended September 30, 2024 and 2023.

Cost of revenues was $7.7 million and $8.2 million, respectively, for the nine months ended September 30, 2024 and 2023.

Cost of revenues decreased $117,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease in software and license costs.

Cost of revenues decreased $528,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the decrease in software and license costs.

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, costs recognized upon the sale of pre-purchased vouchers and salary and related expenses associated with network operations and customer service employees.

Cost of revenues was $4.1 million and $2.6 million, respectively, for the three months ended March 31, 2025 and 2024.

Cost of revenues increased $1.5 million for the three months ended March 31, 2025 from the three months ended March 31, 2024 primarily due to the increase in costs recognized upon the sale of pre-purchased vouchers.

Operating Expenses

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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 $8.2 million and $9.8 million for the three months ended September 30, 2024 and 2023, respectively.

Sales and marketing expenses were $26.2 million and $29.3 million for the nine months ended September 30, 2024 and 2023, respectively.

Sales and marketing expenses were $10.2 million and $8.6 million for the three months ended March 31, 2025 and 2024, 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, 2024 and 2023, advertising expenses accounted for 14% and 29%, respectively, of the total sales and marketing expenses.

For the nine months ended September 30, 2024 and 2023, advertising expenses accounted for 12% and 28%, respectively, of the total sales and marketing expenses.

For the three months ended March 31, 2025 and 2024, advertising expenses accounted for 15% and 10%, 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 decreased $1.6 million for the three months ended September 30, 2024 from the three months ended September 30, 2023.

The decrease was primarily due to the decrease in member acquisition costs as a result of management's strategic plan.

Sales and marketing expenses decreased $3.0 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 .

The decrease was primarily due to $3.9 million decrease in member acquisition costs as a result of management's strategic plan, offset partially by $919,000 increase in salary and related expenses.

Sales and marketing expenses increased $1.6 million for the three months ended March 31, 2025 from the three months ended March 31, 2024.

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 $594,000 and $525,000 for the three months ended September 30, 2024 and 2023, respectively.

Product development expenses were $1.8 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Product development expenses increased $69,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase in salary and related expenses.

Product development expenses increased $230,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase in salary and related expenses.

Product development expenses were $634,000 and $566,000 for the three months ended March 31, 2025 and 2024, respectively.

Product development expenses increased $68,000 for the first months ended March 31, 2025 from the first months ended March 31, 2024 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 $4.7 million and $4.5 million for the three months ended September 30, 2024 and 2023, respectively.

General and administrative expenses were $13.9 million and $13.2 million for the nine months ended September 30, 2024 and 2023, respectively.

General and administrative expenses increased $204,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to $433,000 increase in salary and related expenses, offset partially by $116,000 decrease in legal expenses and $80,000 decrease in professional service expenses.

General and administrative expenses increased $687,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to $343,000 increase in salary and related expenses and $272,000 increase in professional service expenses.

General and administrative expenses were $4.3 million and $4.5 million for the three months ended March 31, 2025 and 2024, respectively.

General and administrative expenses decreased $285,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024 primarily due to $244,000 increase in stock compensation expense and $117,000 increase in bad debt expense, offset by a $224,000 decrease in legal expense and a $286,000 decrease in professional service expense.

Other Income, net

Other income, net consisted primarily of foreign exchange transactions gains and losses, sublease income, German federal government funding for COVID-19 pandemic relief, interest income earned on cash, cash equivalents and restricted cash as well as interest expense.

Other income, net was $359,000 and $314,000, respectively, for the three months ended September 30, 2024 and 2023.

Other income, net was $674,000 and $1.1 million, respectively, for the nine months ended September 30, 2024 and 2023.

Other income, net increased $45,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to $249,000 increase in foreign exchange transactions gains and losses, offset partially by $120,000 decrease in interest income as the result of Azzurro's repayment of $3.0 million principal of its Notes Receivable in 2023 and $90,000 decrease in sublease income as the result of the sublease term expiration in 2023.

Other income, net decreased $469,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to $205,000 German federal government funding for COVID-19 pandemic relief the Company received in the nine months ended September 30, 2023, $270,000 decrease in sublease income as the result of the sublease term expiration in 2023 and $265,000 decrease in interest income as the result of Azzurro's repayment of $3.0 million principal of its Notes Receivable in 2023, offset partially by $267,000 increase in foreign exchange transactions gains and losses for the nine months ended September 30, 2024.

Our income is general ly taxed in the U.S., Canada and U.K.

Other income, net consisted primarily of foreign exchange transactions gains and losses, sublease income, German federal government funding for COVID-related pandemic relief, interest income and interest expense.

Other income, net was $629,000 and $139,000, respectively, for the three months ended March 31, 2025 and 2024.

Other income, net increased $490,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024 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.

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 was $1.1 million and $1.0 million, respectively, for the three months ended September 30, 2024 and 2023.

Our effective tax rate from continuing operations was 26% and 30%, respectively, for the three months ended September 30, 2024 and 2023.

The Company’s effective tax rate for the three months ended September 30, 2024 changed from the three months ended September 30, 2023 primarily due to a decrease of non-deductible expenses in certain jurisdictions in the three months ended September 30, 2024.

Income tax expense was $3.9 million and $3.5 million, respectively, for the nine months ended September 30, 2024 and 2023.

Our effective tax rate from continuing operations was 27% and 28% for the nine months ended September 30, 2024 and 2023, respectively.

The Company’s effective tax rate for the nine months ended September 30, 2024 changed from the nine months ended September 30, 2023 primarily due to a decrease of non-deductible expenses in certain jurisdictions in the nine months ended September 30, 2024.

Income tax expense was $1.2 million and $1.5 million, respectively, for the three months ended March 31, 2025 and 2024.

Our effective tax rate from continuing operations was 26% and 26%, respectively, for the three months ended March 31, 2025 and 2024.

The Company’s effective tax rate for the three months ended March 31, 2025 changed from the three months ended March 31, 2024 primarily due to a higher interest expense related to unrecognized tax positions in the three months ended March 31, 2025.

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.

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Travelzoo North America

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

2024 2023 2024 2023

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 15,128 $ 14,228

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Operating profit as a % of revenue 23.8 % 31.2 %

North America revenues decreased by $586,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023.

This decrease was primarily due to the decrease in revenues from Top 20 and Standalone.

North America expenses decreased by $721,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023.

The decrease was primarily due to the decrease in member acquisition costs.

North America revenues decreased by $1.1 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

This decrease was primarily due to $2.4 million decrease in revenues from Top 20 and Standalone, offset partially by $807,000 increase in hotel commission and $599,000 increase in revenues from Travelzoo Network .

North America expenses decreased by $1.1 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

The decrease was primarily due to $2.3 million decrease in member acquisition costs, offset partially by $864,000 increase in salary and related expenses and $560,000 increase in professional service expenses.

North America revenues increased by $900,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024.

This increase was primarily due to the increase in paid membership fees .

North America expenses increased by $1.7 million for the three months ended March 31, 2025 from the three months ended March 31, 2024.

The increase was primarily due to a $948,000 increase in pre-purchased vouchers and a $763,000 increase in member acquisition costs.

Travelzoo Europe

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

2024 2023 2024 2023

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 6,712 $ 6,662

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Operating profit as a % of revenue 3.4 % 20.7 %

Europe revenues increased by $35,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023.

Europe revenues increased by $50,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024.

The increase was primarily due to $100,000 positive impact from foreign currency movements relative to the U.S.

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The decrease in revenue of $65,000 was primarily due to the de crease in sale of Getaway Vouchers.

Eur ope expenses decreased by $726,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease in member acquisition costs.

Europe revenues increased by $874,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

The increase was primarily due to $506,000 increase in revenues and $368,000 positive impact from foreign currency movements relative to the U.S.

The increase in revenue of $506,000 was primarily due to the increase in Hotel commission.

Eur ope expenses decreased by $1.6 million for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the decrease in member acquisition costs.

Foreign currency movements relative to the U.S.

dollar positively impacted our local currency income from our operations in Europe by approximately $31,000 and $13,000 for the three months ended September 30, 2024 and 2023 respectively.

Foreign currency movements relative to the U.S.

dollar positively impacted our local currency income from our operations in Europe by approximately $84,000 for the nine months ended September 30, 2024.

Eur ope expenses increased by $1.2 million for the three months ended March 31, 2025 from the three months ended March 31, 2024 primarily due to $496,000 in salary and related expenses, a $401,000 increase in pre-purchased vouchers and a $225,000 increase in member acquisition costs.

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 $11,000 and $63,000 for the three months ended March 31, 2025 and 2024 respectively.

Jack ’ s Flight Club

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

2024 2023 2024 2023

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 1,283 $ 1,063

Operating profit (loss) $ 27 $ 144 $ (106) $ 196

Operating loss $ (48) $ (99)

Operating profit loss as a % of revenue (3.7) % (9.3) %

Jack ’ s Flight Club revenues increased by $45,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 due to the increase of subscription fees paid by the members.

Jack’s Flight Club expenses in creased by $162,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase in salary and related expenses.

Jack ’ s Flight Club revenues increased by $98,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 due to the increase of premium members.

Jack’s Flight Club expenses in creased by $400,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase in salary and related expenses .

Jack ’ s Flight Club revenues increased by $220,000 for the first months ended March 31, 2025 from the first months ended March 31, 2024 due to the increase of subscription fees paid by the members.

Jack’s Flight Club expenses in creased by $152,000 for the first months ended March 31, 2025 from the first months ended March 31, 2024 primarily due to the increase in salary and related expenses.

New Initiatives

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

2024 2023 2024 2023

(In thousands) (In thousands)

Three Months Ended March 31,

(In thousands)

Revenues $ 17 $ 32

Operating profit (loss) $ (160) $ (317) $ (474) $ (872)

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 $5,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the increase from the retail and fashion business.

New Initiatives segment expenses decreased by $152,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease in salary and related expenses .

New Initiatives revenues increased $39,000 for the nine months ended September 30, 2024 from the nine months ended September 30, 2023 primarily due to the increase in licensing revenue.

New Initiatives segment expenses decreased by $359,000 for the three months ended September 30, 2024 from the three months ended September 30, 2023 primarily due to the decrease in salary and related expenses .

Operating loss $ (30) $ (130)

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

New Initiatives revenues decreased $15,000 for the three months ended March 31, 2025 from the three months ended March 31, 2024 primarily due to the decrease in the retail and fashion business.

Liquidity and Capital Resources

As of September 30, 2024, we had $11.4 million in cash and cash equivalents, of which $7.5 million was held outside the U.S.

As of March 31, 2025, we had $11.5 million in cash and cash equivalents, of which $8.3 million was held outside the U.S.

in our foreign operations.

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We also had $753,000 in restricted cash held in the U.S.

as of September 30, 2024.

Cash, cash equivalents and restricted cash decreased $4.3 million from $16.4 million as of December 31, 2023 to $12.1 million as of September 30, 2024 primarily due to $16.6 million cash used to repurchase common stock, offset partially by $13.3 million cash provided by operating activities.

As of September 30, 2024 , we had merchant payables of $17.3 million related to unredeemed vouchers.

as of March 31, 2025.

Cash, cash equivalents and restricted cash decreased $5.5 million from $17.7 million as of December 31, 2024 to $12.2 million as of March 31, 2025 primarily due to $8.9 million cash used to repurchase common stock, offset partially by $3.3 million cash provided by operating activities.

As of March 31, 2025 , we had merchant payables of $14.8 million related to unredeemed vouchers.

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

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Payables to merchants are generally due upon redemption of vouchers.

The vouchers expire between October 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 September 30, 2024 will be sufficient to provide for working capital needs for at least the next twelve months.

As of March 31, 2025, unredeemed vouchers have maturities through March 2026;

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 March 31, 2025 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)

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Net decrease in cash, cash equivalents and restricted cash $ (5,513) $ 476

Net cash provided by operating ac tivities 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, 2024 was $13.3 million, which primarily consisted of net income of $10.4 million, $1.9 million increase in non-cash items and $963,000 increase in cash from changes in operating assets and liabilities.

Adjustments for non-cash items primarily consisted of $1.2 million for stock-based compensation and $737,000 for depreciation and amortization.

The increase in cash from changes in operating assets and liabilities was primarily due to $1.8 million increase in deferred revenue, $1.4 million increase in other non-current liabilities and $802,000 increase in accounts payable and accrued expenses, offset partially by $3.3 million decrease in merchant payables.

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

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

The decrease in cash from changes in operating assets and liabilities was primarily due to $8.8 million decrease in merchant payables and $1.7 million decrease in accounts payable, offset partially by $3.3 million decrease in accounts receivable, $2.3 million decrease in prepaid expenses and other, $1.9 million increase in other liabilities and $1.1 million decrease in prepaid income taxes.

Cash paid for income tax, net of refunds received, during the nine months ended September 30, 2024 was $1.5 million.

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

Net cash used in investing activities for the nine months ended September 30, 2024 and 2023 was $129,000 and $104,000, respectively.

The cash used in investing activities for the nine months ended September 30, 2024 was consisted of purchases of property and equipment.

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 for financing activities for the nine months ended September 30, 2024 was $17.2 million which primarily consisted of the repurchase of common stock of $16.6 million and taxes paid for net share settlement of $592,000.

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 stock of $11.8 million and taxes paid for net share settlement of $299,000.

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 three months ended March 31, 2025 was $3.3 million, which primarily consisted of net income of $3.3 million, $549,000 increase in non-cash items and $525,000 decrease in cash from changes in operating assets and liabilities.

Adjustments for non-cash items primarily consisted of $369,000 for stock-based compensation and $206,000 for Provision of loss (net recoveries) on accounts receivable and refund reserve.

The decrease in cash from changes in operating assets and liabilities was primarily due to $1.7 million decrease in merchant payables, offset partially by $1.2 million increase in deferred revenue

Cash paid for income tax, net of refunds received, during the three months ended March 31, 2025 and 2024 was $1.5 million and $548,000, respectively.

Net cash used in investing activities for the three months ended March 31, 2025 and 2024 was $21,000 and $35,000, respectively.

The cash used in investing activities for the three months ended March 31, 2025 was consisted of purchases of property and equipment.

Net cash used for financing activities for the three months ended March 31, 2025 was $8.9 million which primarily consisted of the repurchase of common stock of $8.9 million.

Net cash used for financing activities for the three months ended March 31, 2024 was $3.9 million which primarily consisted of the repurchase of common stock.

Consistent with our growth, we 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.

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Litigation and claims against the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial condition.

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $24.9 million as of September 30, 2024.

We also have contingencies related to net unrecognized tax benefits, including interest and penalties, of approximately $23.9 million as of March 31, 2025.

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

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Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies.

Preparation of the 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 consolidated financial statements as well as revenue and expenses during the periods reported.

Preparation of the 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 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.

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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.

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, 2024 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.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis