•Reliable Information. We operate a Test Booking Center to check the availability of travel, entertainment and local dealsbefore publishing.publishing offers to our members.
•Dedicated Member Service. Travelzoo provides members with dedicated member service which we manage, through telephone and email. Our dedicated service team enriches our value proposition for members and reinforces a positive brand association for Travelzoo and our advertiser clients.
Jack’s Flight Club’s flight alert newsletters provide members with the best airfares for their chosen departure airports, as sourced by our expert team of flight finders, utilizing technology to search thousands of data points each day and meeting our rigorous quality standards. To maintain their independence, flight alert newsletters are not sponsored by third parties and Jack’s Flight Club does not receive any commissions or payments for content published within the newsletters.
Growth Strategy
Our growth strategy reliesis predicated on 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 towards mobile usage by consumers.
•Building Our Trusted Brands. We believe that trust is an essential cornerstone to our brand and has been central to the growth and retention of our membership base over the past twenty-five years. We have built our reputation over time through publishing high-quality content featuring carefully curated offers which members value, and supporting member purchases with excellent service. As travel and entertainment can be complex and highly-considered purchases, we serve.believe that satisfaction is essential to every interaction or transaction our members have with us, and that our brand and reputation support our future growth.
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•Increasing the Value and Engagement of Our Membership Base. While media brands often purport relevance and sell advertising placements based on audience size, we believe that advertisers increasingly value the quality of the audiences accessed, as measured by their responsiveness and ultimate purchase behaviors with advertisers’ offers. We currently utilize onlinecontinue to strategically evolve our member acquisition strategies in terms of membership features and marketing campaigns, to increase the value of our membership base for our advertiser clients.
•Sourcing More Exclusive and Compelling Offers From Advertisers. Growing our business entails an ongoing confluence of enhancing audience value with expanding the array and improving the value of offers we source from advertiser clients. We have an experienced salesforce that sources and services advertising clients, including through direct marketingoutreach and presence at industry conferences. We also maintain an active public relations effort, to drive awareness and promote our brand with trade organizations, other industry participants, consumers and advertisers.
•Innovating With New Experiences and Revenue Streams. In addition to consumers. We utilize sponsorships at industry conferencesenhancing and public relationsgrowing our established businesses and revenue streams, we seek to promoteleverage our brand. We believe that high-quality content attractscore competencies to innovate and expand our offerings and market opportunities. To date, this has included the acquisition of Jack's Flight Club in 2020, through which we added a high-quality user base.
business.
Advertisers
As of December 31, 2017,2023, our advertiser base included more than 2,0005,000 travel, entertainment and local businesses,providers, including airlines, hotels, cruise lines, vacations packagers, tour operators, destinations, car rental companies, travel agents, theater and performing arts groups, restaurants, spas, and activity companies. Some of our advertisers are:
| Alaska Airlines | Indus Travels Inc. | ||||
| DH Travel Services | Jetline Travel | ||||
As discussed in Note 1012–Segment Reporting and Significant Customer Information to the accompanying consolidated financial statements included in Part II, Item 8 of this report and incorporated herein by reference, we did not have any advertisers that accounted for 10% or more of our total revenues during the years ended December 31, 2017, 20162023 and 2015. The2022. Our agreements with certain advertisers are in the form of multiple insertion orders and merchant agreements from groups of entities under common control.
Sales and Marketing
As of December 31, 2017,2023, our advertising sales forcesalesforce and sales support staff consisted of 14968 employees worldwide.
To promote membership to consumers, we primarily utilize digital marketing efforts. We also source members organically, by word-of-mouth and through our brands.reputation for quality and value.
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Technology
We have designed our technology infrastructure to send a large volume of emails, serve a large volume of Webweb traffic and send a large volume of e-mailstrack activity in an efficient and scalable manner.
Intellectual Property
Regulatory Matters
Our business is subject to a significant number of federal, state, local and international laws, rules and regulations applicable to online or digital advertising and commercial email marketing. We are also subject to laws, rules, and regulations regarding data collection, privacy and data security, intellectual property ownership and infringement, sweepstakes and promotions and taxation, among others, with the United States Patentothers. We own and Trademark Office. We have registered the Travelzoo and Travelzoo Top 20 trademarks with the Office for Harmonizationoperate consumer-facing websites in the Internal Marketvarious regions in which we operate and are subject to the laws, rules, and regulations of those countries as they impact our operations.
These laws, rules, and regulations, which generally are designed to regulate and prevent deceptive practices in advertising and online marketing protect individual privacy rights and prevent the European
Employees
As of December 31, 2017,2023, we had 442 employees in Asia Pacific, Europe and North America. None223 employees. None of our employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.
We make available free of charge, on or through our Investor Relations website (www.travelzoo.com)(ir.travelzoo.com), annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information included on our website does not constitute part of this report.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any or all of the risks listed below, as well as other variables affecting our operating results, in whole or in part, could have a material adverse effect onmaterially and adversely affect our business our quarterly and annual operating results or financial condition, which could cause the market price of our stock to decline or cause substantial volatility in our stock price, in which event the value of your common stock could decline. You should also keep these risk factors in mind when you read forward-looking statements.
Risks Related to Our Financial Condition and Business Model
We cannot assure you that we will be profitable.
In the yearsyear ended December 31, 2017, 2016 and 2015,2023, we generated consolidated net income of $3.5$12.5 million, of which $12.4 million income was attributable to Travelzoo. In the year ended December 31, 2022, we generated consolidated net income of $6.6 million, of which $6.6 million income was attributable to Travelzoo. Our profitability was adversely impacted in 2022 and $10.9 million, respectively. Although we were profitable in 2017, 2016 and 2015, there is no assurance that we will be profitable in2021 due to the future.global COVID pandemic. We forecast our future expense levels based on our operating plans and our estimates of future revenues. WeIn the future, depending on various factors, including but not limited to, market conditions, changes in the general economy and the travel industry, we may need to cut expenses to preserve profitability or, alternatively, we may find it necessary to significantly accelerate expenditures relating to our sales and marketing effortsmeet increased demand or otherwise increase our financial commitment to creating and maintainingmaintain brand awareness among Internet users and advertisers.awareness. We may also expand, and upgrade ourand/or add technology and make investments in ourexisting or new products as well as develop new products(including, but not limited to the move to a paid membership model) that may impact our profitability. If our revenues grow at a slower rate than we anticipate or decline, or if our spending levels exceed our expectations or cannot be adjusted to reflect slower revenue growth, we may not generate sufficient revenues to be profitable. Any of these developments could result in a significant decrease in the trading price of our common stock.
Fluctuations in our operating results may negatively impact our stock price.
Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors that could affect our revenues or our expenses in any particular period. You should not rely on quarter-to-quarterour quarter to quarter comparisons of our results of operations, as they are not considered an indication of future performance. Factors that may affect our quarterly results include:
consumer refund rate; mismatches between resource allocation and client demand due to difficulties in predicting client demand in a new market;
demand; changes in general economic conditions (perceived or actual) that could affect marketing efforts generally and online marketing efforts in particular;
impair consumer spending; the magnitude and timing of marketing initiatives, including ourmember acquisition of new members and our expansion efforts in other regions;
efforts; the introduction, development, timing, competitive pricing and market acceptance of our products and services (including our move to a paid membership model) and those of our competitors;
our ability to attract, hire and retain key personnel;
our ability to maintain merchant and member satisfaction such that we are able to continue to attract high-quality merchants and members; our ability to manage our planned growth;
our ability to attract usersencourage our existing members to engage with our websites, which may be adversely affected by the audience shiftproducts and services and to mobile devices;
convert them to revenue-generating users; technical difficulties or system downtime affecting the Internet generally or the operation of our products and services specifically;services; and
volatility of our operating results in new markets.
We may significantly decrease our operating expenses in response to changes in general economic conditions, performance and/or declines in consumer demand. We may significantly increase our operating expenses related to advertising campaigns, as well as our hotel booking platform, for a certain period if, among other reasons, we see a unique opportunity for a brand marketing campaign, if we find it necessary to respond to increased brand marketing by a competitor, or if we decide to accelerate our acquisition of new members or engagement of existing members.
If revenues fall below our expectations in any quarter and we are unable to quickly reduce our operating expenses in response, our operating results would be lower than expected and our stock price may fall.
In December of 2023, we announced that effective January 1, 2024, we would be moving to a paid membership model, with existing Travelzoo members grandfathered in through the end of the year. In March of 2022, we announced the creation of our new Metaverse business and in 2023, we launched Travelzoo META Founding Membership, following a test and learn strategy, with plans for the launch of a subscription membership service that provides members with exclusive access to Metaverse travel experiences to follow. We previously expanded our voucher offering to include fully refundable vouchers and later added a surcharge option where members can pay extra for full refundability. We have beenhistorically invested in the processpackaging technology and expansion of expanding our hotel booking platform whichplatform. We may in the future invest in upgraded technology for our email
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products or invest in completely new technology or products. Such product modifications and expansions may result in an increase in costs to further develop the platform in the near-term and an increase in cost structure in the long-term, which may be in excess of incremental revenue. If our hotel booking platform isexpanded product offerings are not embraced by our users or our advertising partners, or if we are unsuccessful in our efforts to monetize these initiatives, our business and financial results could be adversely affected. To the extent that our room rates on our hotel booking platform are not competitive (i.e., versus the websites of other online travel companies or hotel company websites), we may not be able to attract members. If we cannot attract members to the hotel booking platform to make bookings,our product offerings, our financial results could be adversely affected. In addition, the hotel booking platform will be sensitive to fluctuations in hotel supply, occupancy and average daily rates and a fluctuation in any of these factors could negatively impact our hotel booking revenue. Furthermore, hotels may offer products and services on more favorable terms to consumers who transact directly with them. In the past year, certain hotel chains have launched advertising campaigns expressly designed to drive consumer traffic directly to their websites. We can give no assurances that the hotel booking platformany of our product offerings will yield the benefits we expect and will not result in additional costs or have adverse impacts on our business.
costs.
Our Local Deals businessvoucher products may be adversely impacted by competition and decreasedchanging consumer demand for vouchers.
Our Local Deals and Getaway formats of advertisingGetaways products include the sale of vouchers directly to consumers to advertise promotional dealsoffers provided by merchants.
A change in our estimate of our refund rates with respect to unredeemed vouchers could result in a change of our reported revenues and an increase in our refund rates could reduce our liquidity and adversely affect our profitability.
According to accounting standards for revenue recognition, revenue that is subject to refunds or returns is considered variable consideration and must be constrained so that it is probable that a significant reversal will not occur in the future as the uncertainty is resolved. To comply with this standard, we estimate future refunds and refund rates for Local Deals and Getaways vouchers utilizing a model that incorporates qualitative and quantitative factors, including but not limited to, historical refund rates based on deal category, relative risk of refund based on voucher type, and changing business and market conditions. However, accurately predicting refund rates requires judgement, and we can make no guarantees that our estimates will be correct. If our refund estimates are materially understated, it will result in a reversal of revenues previously reported and we may be required to restate our financial statements for the relevant periods, which could damage our reputation and impact our stock price.
Impairments of goodwill, long-term investments and long-lived assets have a negative impact on our results of operations.
We perform our impairment test annually in October unless there are events that trigger the need for an interim test. No impairment was identified in connection with the annual impairment test for 2023. For the annual impairment test in 2022, we recorded a $200,000 impairment charge in connection with the indefinite lived intangible assets (JFC Trade name). The determination of fair value reflects numerous assumptions that are subject to various risks and uncertainties. It requires significant judgments and estimates and actual results could be materially different. Future events and changing market conditions may lead us to re-evaluate the assumptions reflected in the current forecast which may result in additional impairment charges, which could have a material adverse effect on our results of operations.
Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-generating arrangements.
We utilize Internet search engines such as Google, principally through the purchase of travel-related keywords and through organic search, to generate additional traffic to our websites. The number of users we attract from search engines to our websites is due in large part to how and where information from, and links to, our websites are displayed on search engine results pages. The display, including rankings, of unpaid search results can be affected by a number of factors, many of which are not in our control and may change frequently. Search engines including Google, frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchasedplacement or algorithmic placementcost of links to our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our participation in pay-per-click and display advertising campaigns on search engines, including Google, travel metasearch engines, including Kayak, and Internet media properties, including TripAdvisor.properties. Pricing and operating dynamics for these traffic sources can experience rapid change, both technically and competitively. Also, we may scale back our expenditures at any time. Moreover, a search or metasearch engine could for competitive or other purposes, alter its search algorithms or display of
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results, causing a website to place lower in search query results. If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or
Trends in consumer adoption and use of mobile devices continue to create new challenges.
We believe that the Travelzoo mobile bookingsexperience continues to present an opportunity for growth. Further development of and investment into our mobile offeringsoffering is necessary to maintain and grow our business as consumers increasingly turn to mobile devices instead of a personal computer and to mobile applications instead of a web browser. Further, many consumers use a mobile device based web browser instead of an application. As a result, itbusiness. It is increasingly important for us to develop and maintain effective mobile websites optimized for mobile devices to provide customers with appealing easy-to-use mobile website functionality.devices. If we are unable to continue to rapidly innovate and create new, user-friendly and differentiated mobile offerings and efficiently and effectively advertise and distribute on these platforms, or if our mobile applications are not downloaded and used by travel consumers, we could lose market share to existing competitors or new entrants and our future growth and results of operations could be adversely affected.
We may have exposure to additional tax liabilities.
As a global company,business, we are subject to income taxes as well as non-income based tax,taxes, in both the U.S. and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Although we believe that our tax estimates are reasonable, there is no assurance that the final determination of any tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals. Changes in tax laws or tax rulings may have a significantlysignificant adverse impact on our effective tax rate. On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significantThere could be additional changes to the U.S. corporate tax rate in the future. The interpretation and implementation of regulations, rules or guidance that have or may be adopted could have a material impact on our business.
A number of European Union member states have taken steps to unilaterally introduce a services tax. For example, effective in January 2021, Spain began taxing digital services at 3% of revenues for companies that operate globally and have a significant digital footprint in Spain. Many questions remain regarding these digital services taxes. It is not clear whether digital services taxes can be deducted for income tax system including: a federal corporate rate reduction from 35% to 21%; limitationspurposes or whether there is potential for double taxation on the deductibilitysame transaction. The interpretation and implementation of interest expense and executive compensation; creation of new minimumthese taxes such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) tax; and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which will result in a one time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”). In addition, limitations on the use of net operating losses to offset income for tax years after December 31, 2017 may limit our ability to benefit from accumulated net operating losses(especially if there is inconsistency in the future.application of these taxes across tax jurisdictions) could have a material adverse impact on our business, results of operations and cash flows.
We are also may be subject to non-income based taxes, such as value-added, payroll, sales, use, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions.
From time to time, the Company is under auditmay by audited by tax authorities with respect to these non-income based taxes and may have exposure to additional non-income based tax liabilities. These examinations may lead to ordinary course adjustments or proposed adjustments to itsour taxes or itsour net operating income or may result in recognition of previously unrecognized tax benefits upon completionincome.
The Company’s use of the examination.net operating losses (“NOLs”) of MTE or the NOLs themselves maybe audited by the Internal Revenue Service (“IRS”) or other taxing agency. The IRS may disagree with the Company’s position that the NOLs may be fully utilized, resulting in a whole or partial limitation on the use of the NOLs by the Company.
Adverse application of state and local tax laws could have an adverse effect on our business and results of operation.
Our expansion of our product offering to include a hotel booking platformofferings may subject us to state and local tax laws and result in additional tax liabilities. A number of jurisdictions in the U.S. havehistorically initiated lawsuits against other online travel companies, related to, among other things, the payment of hotel occupancy and other taxes (i.e., state and local sales tax). In addition, a number of municipalities have initiated audit proceedings, issued proposed tax assessments or started inquiries relating to the payment of hotel occupancy and othersuch taxes.
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obligation from our customers, which would have the effect of increasing the cost of hotel room reservations to our customers and, consequently, could make our hotel serviceservices less competitive (i.e., versus the websites of other online travel companies or hotel company websites) and reduce hotel reservation transactions. Either steptransactions and with respect to past transactions, we could have a liability for tax that we did not collect from our customers. This could have a material adverse effect on our business and results of operations. We will continue to assess the risks of the potential financial impact of additional tax exposure.
Our business model may not be adaptable to a changing market.
Our current revenue model depends primarily on advertising fees paid by travel and entertainment companies and still relies significantly on e-mailemail communications with our members. If current clientsclients/partners decide not to continue or are unable to continue advertising their offers with us and we are unable to replace them with new clients,clients/partners or alternative revenue streams (such as, for example, from the sale of paid memberships), our business may be adversely affected. To be successful, we must provide online marketing solutions that achieve broad market acceptance by travel and entertainment companies. In addition, we must attract sufficient Internet users with attractive demographic characteristics to our products. It is possible that we will be required to further adapt our business model and products in response to changes in the online advertising market or travel industry or if our current or planned business model is not successful. For example, uncertainty surrounding the trend toward mobile online traffic willability to travel would require us to adapt our product offeringofferings to facilitate consumers' use ofmove away from our products.reliance on advertising fees and to provide consumers with additional flexibility in order to attract them to purchase. If we do not adapt to this trendthese trends fully or quickly enough, we may lose advertising revenue as consumer usage may decline from our non-mobile traffic.decline. If we are not able to anticipate changes in the online advertising market or if our business model is not successful, our business could be materially adversely affected.
If we fail to retain existing advertisers or add new advertisers, our revenue and business will be harmed.
We depend on our ability to attract and retain advertisers (hotels, spas, restaurants, vacation packagers, airlines, etc.) that are prepared to offer products or services on compelling terms to our members. We do not generally have long-term arrangements to guarantee the availability of dealsoffers that offerprovide attractive quality, value and variety to consumers or favorable payment terms to us. We must continue to attract and retain advertisers in order to increase revenue and maintain profitability. If new advertisers do not find our marketing and promotional services effective, or if existing advertisers do not believe that utilizing our products provides them with a long-term increase in customers, revenue or profit, they may stop making offers through our marketplace. In addition, we may experience attrition in our advertisers in the ordinary course of business resulting from several factors, including losses to competitors and advertiser closures or bankruptcies.bankruptcies/insolvencies. We can also experience a decline in advertisers makingproviding offers in certain destinations due to natural disasters such as hurricanes, fires and floods.or travel restrictions. If we are unable to attract new advertisers in numbers sufficient to grow our business, or if too many advertisers are unwilling to offer products or services with compelling terms to our members or offer favorable payment terms to us, we may sell less advertising, and our operating results will be adversely affected. For example, we may lose advertisers due to market conditions or performance, such as our recent loss of revenue from certain online booking engines, airlines and vacation packagers. We may not be able to add enough additional revenue such as hotel revenue from Getaway or the hotel booking platform, in order to replace the lost revenue. Furthermore,Further, the new revenue may cost more to generate, compared to the costs that the lost revenue required to generate, thereby adversely impacting our operating results.
If our advertisers do not meet the needs and expectations of our members, our business could suffer.
Our business depends on our reputation for providing high-quality deals,offers, and our brand and reputation may be harmed by actions taken by advertisers, partners, or merchants that are outside our control. For ourLocal Deals and GetawayGetaways merchants, since we are selling vouchers on behalf of the merchants directly to our members, we face exposuresexposure should merchants not fully honor the deals.terms of the offers or the vouchers, including if the merchant were to go out of business or stop providing services for any reason. As for our travel business, we are collecting an advertising fee from the advertiser and the members are booking the deal directly with the advertiser. Althoughalthough the advertiser is responsible directly to the consumer to provide the consumer the dealoffer it advertised, our business can be adversely affected should an advertiser fail to comply with the terms of the advertised deal. Anyoffer or provide us with misleading information about the offer that we use in our advertisements. From time to time, merchants and advertisers experience insolvency, bankruptcy or closure of their businesses and can face regulatory issues (including losing their licenses), which can result in the cancellation of services booked by consumers through the advertiser. Advertisers who fail to fulfill the travel services advertised in the promotions run by us can negatively impact our reputation, and advertisers that fail to pay for the advertisements can also negatively impact revenue growth. Moreover, any shortcomings of oneour advertisers or more of our merchants, particularly with respect to an issue affecting the quality of the deal offered or the products or services sold,offer, may be attributed by our members to us, thus damaging our reputation and brand value and potentially affecting our results of operations. In addition, negative publicity and member sentiment generated as a result of fraudulent or deceptive conduct by our merchants or partners could also damage our reputation, reduce our ability to attract new members or retain our current members, and diminish the value of our brand.
Our business relies heavily on e-mailemail and other messaging services, and any restrictions on the sending of e-mailsemails or messages or a decrease in member willingness to receive emails or messages could adversely affect our revenue and business.
Our business is highly dependent upon e-mailemail and other messaging services. Deals offered through e-mails and other messagesEmail offers sent by us, or on our behalf by our affiliates, generate a substantial portion of our revenue. Because of the importance of e-mailemail and other messaging services, to our businesses, if we are unable to successfully deliver e-mailsemails or messages, to our members or potential members, or if members decline to open our e-mailsemails or messages, or purchase
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any of our advertised offers, our revenue and profitability wouldcould be adversely affected. New lawsLaws and regulations regulating the sending of commercial e-mails,emails, including those enacted in foreign jurisdictions (such as Canada, the U.K. and Europe), may affect our ability to deliver e-mailsemails or messages to our members or potential members and may also result in increased compliance costs. Further, actions by third parties to block, impose restrictions on, or charge for the delivery of e-mailsemails or other messages could also materially and adversely impact our business. From time to time, Internet service providers block bulk e-mailemail transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver e-mailsemails or other messages to third parties. In addition, our use of e-mailemail and other messaging services to send communications about our website or other matters may result in legal claims against us, which if successful might limit or prohibit our ability to send e-mailsemails or other messages. Any disruption or restriction on the distribution of e-mailsemails or other messages or any increase in the associated costs would materially and adversely affect our revenue and profitability. In addition, the shift in our website traffic originating from mobile devices accessing our services may decrease our members' willingness to use our services if they are not satisfied with our mobile user experience and could decrease their willingness to be an e-mail member, whichemail member.
“Cookie” laws could adversely affect our revenue and profitability.negatively impact the way we do business.
Our reported total number of members may be higher than the number of our actual individual members and may not be representative of the number of persons who are active potential customers.
The total number of members we report may be higher than the number of our actual individual members because some members have multiple registrations, other members have died or become incapacitated and others may have registered under fictitious names.names or with email addresses they no longer use, and different members may have selected different preferences for email communications. Given the challenges inherent in identifying these members, we do not have a reliable system to accurately identify the number of actual individual members, and thus we rely on the number of total members shown on our records as our measure of the size of our member base. In addition, the number of members we report includes the total number of individuals that have completed registration through a specific date, less individuals who have fully unsubscribed. Those numbers of members may include individuals who do not receive our e-mailsemails because our e-mailsemails have been blocked or are otherwise undeliverable. As a result, the reported number of members should not be considered as representative of the number of persons who continue to actively consider our deals by reviewing our e-mailemail offers.
We may not be able to obtain sufficient funds to grow our business and any additionalequity or debt financing may be on terms adverse to your interests.terms.
For the year ended December 31, 2017,2023, our cash and cash equivalents decreased by $4.3 million to $22.6was $15.7 million, of which $16.4$10.7 million was held outside the U.S. in certain of our foreign operations. We intendsubsidiaries. As of December 31, 2023, we had negative working capital of $3.4 million. Merchant payables was $20.6 million as of December 31, 2023. The payable to continue to grow our businessmerchants is generally due upon redemption of the voucher. The expiration dates of vouchers range between January 2024 through December 2025; however, these expiration dates may sometimes be extended on a case-by-case basis and fund our current operations using cash on hand. However, thisfinal payment upon expiration may not be sufficientdue for up to meeta year after expiration. However, if redemption activities are more accelerated, if our needs, includingbusiness is not profitable, and if our planned targets for cash flows from operations are not met, we may need to obtain additional financing in the paymentsfuture. We did receive certain subsidies, tax relief or other financial aid from various governmental programs relating to COVID (particularly in the US, Canada, UK and Germany), however, we repaid back any funds received that were required to settle various commitments and contingencies, as described under Note 4 and 5be repaid. We may have been required to agree to certain restrictions, audit requirements and/or obligations to reimburse support payments in part or in total, which could negatively impact the accompanying consolidated financial statements.business. We may not be able to obtain financing on commercially reasonable terms, or at all.
all, especially due to volatile market conditions. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund our expansion,strategic objectives, meet our payroll obligations, successfully promote our brand, name, develop or enhance our products and services, take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our business.
If we choose to raise additional funds through thean equity issuance, of equity securities, existing stockholders may experience significant dilution of their ownership interest and holders of the additional equity securities may have rights senior to existing stockholders of our common stock. If we obtain additional financing by issuingthrough debt securities, or bank borrowings, the terms of these
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arrangements could restrictrequire the pledging of assets, could subject the Company to restrictive covenants or prevent us from paying dividendslarge fees, and could limit our flexibility in making business decisions.flexibility.
The demand for online advertising may be linked to the level of economic activity and employment in the U.S. and abroad. Specifically, our business is primarily dependent on the demand for online advertising from travel and entertainment companies. The most recentEvents like war, political instability or other conflicts (including the war in Ukraine and the Israel-Hamas war), terrorist attacks, mass shooting incidents, strikes, natural disasters and extreme weather situations, plane crashes, major public health events, such as the COVID pandemic, and logistical challenges such as widespread travel disruptions may have a negative impact on the travel industry and affect travelers’ behavior by limiting their ability or willingness to visit certain locations. In addition, advertisers may choose to limit advertising spend, which can adversely impact our business. Macroeconomic factors and uncertainties such as rising interest rates, persistently high inflation and/or recession decreasedfears may have a negative impact on consumer travel and caused travel and entertainment companiesbehavior by reducing consumers’ ability or willingness to reduce or postpone their marketingengage in discretionary spending generally, and their online marketing spending in particular. Continued or future recessionson travel. In turn, that could have a material adversenegative impact on demand for our services. We are not in a position to evaluate the net effect onof these circumstances as many of these events and developments cannot be reliably forecasted. In the longer term, our business andmight be negatively affected by financial condition. Moreover, declinespressures on or disruptions inchanges to the travel industry could adversely affectand the hotel booking platform and financial performance.economy overall.
Our operations could be significantly hindered by the occurrence of a natural disaster or other catastrophic event.
Our operations are susceptible to outages due to fire, floods, power loss, telecommunications failures, unexpected technical problems in the systems that power our websites and distribute our e-mailemail newsletters, break-ins and similar events. In addition, a significant portion of our network infrastructure is located in Northern California, an area susceptible to earthquakes. We do not have multiple site capacity to protect us against any such occurrence. Outages could cause significant interruptions of our service. In addition, despite our implementation of network security measures, and although we have moved most of our IT operations to the cloud, our servers are vulnerable to computer viruses, physical and electronic break-ins, and similar disruptions from unauthorized tampering with our computer systems. We do not carry business interruption insurance to compensate us for losses that may occur as a result of any of these events.
We are subject to payments-related and fraud risks.
We accept payments for the sale of vouchers using a variety of methods, including credit cards and debit cards. We pay interchange and other fees, which may increase over time, and raise our operating expenses, and lower profitability. We rely on third parties to provide payment processing services including the processing of credit cards and debit cards, and it could disrupt our business if these companies become unwilling (on favorable terms or otherwise) or unable to provide these services to us. Macroeconomic circumstances over which the Company has no control may result in payment processing services requiring larger deposits, imposing stricter rules or requirements, or deciding to stop working with companies related to the travel industry altogether. If we are unable to pivot to a new payment processor quickly, this could lead to periods of time where we are unable to accept or process payments from our members, impacting our ability to generate revenue. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers and regulations for electronic payment services, such as PSD2 in Europe, which could change or be reinterpreted to make it difficult or impossible for us to comply. In addition, our results can be negatively impacted by purchases made using fraudulent credit cards. Because we act as the merchant of record for certain hotel booking and voucher transactions, we may be held liable for accepting fraudulent credit cards on our websites as well as other payment disputes with our customers. If we have an increase of charge-backs due to the use of fraudulent credit cards on our websites, our business, results of operations and financial condition could be adversely affected. Moreover, under payment card rules and our contracts with our card processors, if there is a security breach of payment card information that we store, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments, process electronic funds transfers, or facilitate other types of online payments, and our business and results of operations could be adversely affected. If one or more of these contracts are terminated and we are unable to replace them on similar terms, or at all, it could adversely affect our results of operations.
Our reported financial results may be adversely affected by changes in United States generally accepted accounting principles, and we may incur significant costs to adjust our accounting systems and processes to comply with significant changes.comply.
United States generally accepted accounting principles are subject to interpretation by the Financial Accounting Standards Board or FASB,(“FASB”), the American Institute of Certified Public Accountants (“AICPA”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. In 2014, the FASB issued a new accounting standard related to revenue recognition which could change the way we account for certain of our sales transactions. The adoption of this standard and changes in other principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the effective dates of the standard. Such change could have a significant effect on our reported financial results. In addition, weWe may need to significantly change our accounting systems and processes if we are required to adopt future or proposed changes in accounting principles noted above.principles. The cost of these changes may negatively impact our results of operations during the periodstransition.
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Increased focus on environmental, social, and governance ("ESG") responsibilities have and will likely continue to result in additional costs and risks, and may adversely impact our business.
There has been an increased focus on ESG practices of transition.
companies, including climate change, diversity, equity and inclusion, human capital management, data privacy and security, supply chains (including human rights issues), among other topics, by institutional, individual, and other investors, proxy advisory services, regulatory authorities, consumers, employees and other stakeholders. These evolving expectations and our efforts and ability to respond to and manage these issues, provide updates on them, and establish and meet appropriate goals, commitments, and targets present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which may be outside of our control or could have a material adverse impact on our business. Our efforts in this area may result in a significant increase in costs and may not meet expectations, evolving standards or regulatory requirements, which may negatively impact our financial results, our reputation, our ability to attract or retain employees, or business partners, or expose us to various types of legal actions.
Risks Related to Our Markets and Strategy
Our international expansionoperations may result in operating losses and isare subject to other material risks.
uncertainties and instability in economic and market conditions caused by the United Kingdom's voteconditions; exposure to exit the European Union;
difficulties in collecting accounts receivable; trade barriers and changes in trade regulations;
regulations, including new or increased tariffs; difficulties in developing, staffing and simultaneously managing foreign operations as a result of distance, language and cultural differences;
stringent local labor laws and regulations;
bans on travel among or between various countries; risks related to government regulation;regulation, including changing policies in areas such as trade, travel, immigration, and
healthcare, among others; and potentially adverse tax consequences.
Moreover, fluctuations in currency exchange rates can impact our revenues. Foreign currency movements relative to the U.S. dollar have negatively impacted our revenues from our operations in Europe. For example, since the United Kingdom's Brexit vote, global markets and foreign exchange rates have experienced increased volatility, including a decline in the value of the British Pound Sterling as compared to the U.S. Dollar. The United Kingdom's decision to leave the European Union could result in other member countries also determining to leave, which could lead to added economic and political uncertainty and further devaluation or eventual abandonment of the Euro common currency, any of which could have a negative impact on travel and therefore our business and results of operations. The uncertainty and volatility in foreign exchange rates, which may differ across regions, makes it more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and business, which in turn could adversely affect our ability to effectively manage our business and adversely affect our results of operations.
In addition, we face risks related to the growth rate and expansion of our international business, including our expansion in Asia Pacific. Aa decline in the growth rates of our international businesses could have a negative impact on our gross profit and earnings per share growth rates and, as a consequence, our stock price. Many of these regions have different customs, currencies, levels of consumer acceptance and use of the Internet for commerce, legislation, regulatory environments, tax laws and levels of political stability. International markets may have strong local competitors with an established brandbrands that may make expansion in that market difficult and costly and take more time than anticipated. In addition, compliance with legal, regulatory or tax requirements in multiple jurisdictions places demands on our time and resources, and we may nonetheless experience unforeseen and potentially adverse legal, regulatory or tax consequences.
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We may not be able to continue developing awareness of our brand names.
We believe that continuing to build awareness of the Travelzoo and Jack’s Flight Club brand names, and starting to build awareness of the Travelzoo META brand name, isare critical to achieving widespread acceptance of our business. Brand recognition is a key differentiating factor among providers of online advertising opportunities, and we believe it could become more important as competition in our industry increases.opportunities. In order to maintain and build brand
awareness, we must succeed in our marketing efforts. Our marketing spend is influenced by the marketing spend of our competitors as we seek to maintain and increase our brand recognition and to maintain and grow traffic to our platforms through performance marketing channels. If we fail to successfully promote and maintain our brands,brand consistently across numerous jurisdictions and channels, incur significant expenses in promoting our brands and fail to generate a corresponding increase in revenuerevenues as a result of our branding efforts, or encounter legal obstacles which prevent our continued use of our brand names, our business could be materially adversely affected. Deterioration in our marketing efficiency could result in reduced revenues or revenue growth, or marketing expenses increasing faster than revenues, which would reduce margins and earnings growth.
If we fail to retain our existing members or acquire new members, our revenue and business will be harmed.
We spent $6.8 million, $8.0$7.0 million and $9.5$5.3 million on online marketing initiatives relating to member acquisition for the years ended December 31, 2017, 20162023 and 2015 2022, respectively, and expect to continue to spend significant amounts to acquire additional members. We must continueOur long-term success depends on our continued ability to attract, retain and acquire members in order to maintain or increase revenue.engage members. We cannot assure you that the revenue from members we acquire will ultimately exceed the cost of acquiring new members. If members do not perceive our offers to be of high value and quality or if we fail to introduce new and more relevant deals, we may not be able to acquire or retain members.members, especially after the introduction of a paid membership. If we reduce our member acquisition costs, we cannot assure you that this will not adversely impact our ability to acquire new members. If we are unable to acquire new members who purchase our membership and deals directly or indirectly in numbers sufficient to grow our business, or if members cease to purchase, our deals directly or indirectly through our advertisers, the revenue we generate may decrease and our operating results will be adversely affected. If the level of usage by our member basemembers declines or does not grow as expected, we may suffer a decline in member growth or revenue. A significant decrease in the level of usage or member growth would have an adverse effect on our business, financial condition and results of operations. In addition, a shift of our audience to mobile devices and social media channels without corresponding updates of our offerings or marketing activities to address this audience could result in lower revenues.
We may not be able to attract travel and entertainment companies or Internet users if we do not continually enhance and develop the content and features of our products and services.
To remain competitive, we must continually improve the responsiveness, functionality, and features of our products and services. We may not succeed in developing features, functions, products, or services that travel and entertainment companies and Internet users find attractive.attractive, including in unsettled and untested areas like artificial intelligence (AI) and the Metaverse. Our current technology may not meet the future technical requirements of travel and entertainment companies. This could reduce the number of travel and entertainment companies and Internet users using our products and materially adversely affect our business. We are also recently launched a new and simpler design forcontinually looking to refine our website.product offerings. We cannot guarantee that our recently launched productsany such refinements will be embraced by our members. It may take us longer than expected to fully realize the anticipated benefits, and those benefits may ultimately be smaller than anticipated, which could adversely affect our business. While we are striving to improve functionality, usability and design in our products, the recentongoing enhancements on web and mobile and investment in packaging and other technology may not achieve the desired results we anticipate, and if unsuccessful, could result in a decline in revenues, an increase in costs, and a negative impact on our business.
Our business and growth will suffer if we are unable to hire and retain highly skilled personnel.
Our future success depends on our ability to attract, train, motivate, and retain highly skilled employees. We may be unable to retain our skilled employees, or attract, assimilate, and retain other highly skilled employees in the future. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we are unable to hire and retain skilled personnel, our growth may be restricted, which could adversely affect our future success.
Additionally, the loss or departure of any of our key employees could materially adversely affect our ability to implement our business plan. We maydo not bemaintain key person life insurance for any member of our management team. We also expect new members to join our management team in the future. If our key management personnel are not able to work together effectively, manage our expanding operations.
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Intense competition may adversely affect our ability to achieve or maintain market share and operate profitably.
The markets for the services we offer are intensely competitive, constantly evolving and subject to rapid change, and current and new competitors can launch new services at a relatively low cost. We compete for advertising dollars with large Internet portal sites, such as Trip Advisor,Tripadvisor, that offer listings or other advertising opportunities to travel, entertainment and local businesses. These companies have significantly greater financial, technical, marketing and other resources and larger advertiser bases. They may be able to research, develop and deploy new products and technologies (including in the area of AI) faster than us. We compete with companies like Groupon that sell vouchers for deals from local businesses such as spas, hotels and restaurants and tour operators for vacation packages. We compete with search engines like Google and Bing that offer pay-per-click listings. Additionally, certain search engines have increased their focus on acquiring or launching travel products, such as Google Flights. We compete with newspapers, magazines and other traditional media companies that operate websites which provide online advertising opportunities. We compete with travel metasearch engines like Kayak Software Corp.Kayak.com (owned by Booking Holdings) and online travel and entertainment deal publishers.publishers (including online restaurant reservation services). We compete with large online travel agencies like the Expedia Group and PricelineBooking Holdings, as well as thousands of individual travel agencies around the world, that also offer advertising placements and hotel booking platforms and capture consumer interest. As a result of our acquisition of Travelzoo Asia Pacific, we nowWe also compete or may compete in the future with large online travel service providers,companies that offer similar services to Jack’s Flight Club, like CtripGoing (formerly Scott’s Cheap Flights) and eLong.Dollar Flight Club. There has been substantial consolidation of the global travel industry and we believe this trend will continue. Some of our competitors are large companies thatand have significant resources and substantial international operations. These largeSuch companies have recently announcedalso completed acquisitions to further consolidate the industry.
There has also been a proliferation of new channels and platforms through which accommodation providers can offer reservations. For example, companies such as Airbnb (which acquired HotelTonight), HomeAway and VRBO (which are both owned by Expedia Group) offer services providing alternative accommodation property owners, particularly individuals, an online place to list their alternative accommodations, which compete with our hotel offers. Further, meta-search services may lower the cost for new companies to enter the market by providing a distribution channel without the cost of promoting the new entrant's brand to drive consumers directly to its website. Some competitors offer a variety of online services, such as food delivery, shopping, gaming or search services, many of which are used by consumers more frequently than online travel industry. For example, Ctrip announcedservices. As a result, a competitor that it was acquiring Skyscanner and Priceline announced it was acquiring Momondo. Expedia owns Travelocity, Orbitz, Hotels.com, Hotwire, Trivago, and HomeAway, among others. The continued consolidationhas established other, more frequent online interactions with consumers may be able to more easily acquire customers for its travel services than we can. If any of the global travel market may impactthese platforms are successful in offering similar services to consumers who would otherwise use our abilityplatforms or if we are unable to compete in certain areas.
We may not be able to access third partythird-party technology upon which we depend.
We use data technology and software products from third parties (such as hosting and cloud services), and technology from our vendors may not continue to be available to us on commercially reasonable terms, or at all. Our business, including Jack’s Flight Club which relies on third parties for flight data, will suffer if we are unable to access technology, to gain access to additional products or to integrate new technology with our existing systems. This could hinder our existing product offerings, cause delays in our development and introduction of new services and related products or enhancements of existing products until equivalent or replacement technology can be accessed, if available, or developed internally, if feasible. If we experience these delays, our business could be materially adversely affected.
We also rely on certain third party computer systems and third partythird-party service providers, including Global Distribution Systems and computerized central reservation systems, in connection with providing certain of our hotel booking services.services and travel package offerings. Any interruption in these third party services and systems or deterioration in their performance could prevent us from utilizing certain booking services and have an adverse effect on our business, brands and results of operations. Our agreements with some third partythird-party service providers are terminable upon short notice and often do not provide recourse for service interruptions.
The implementation of new information technology, payment, enterprise resource planning, or other systems (including AI) could be disruptive and/or costly or we may experience difficulty successfully integrating new systems into existing systems or migrating to new systems from existing systems, any of which could adversely affect our business and results of operations. Any failure to implement or adapt to new technologies in a timely manner or at all could adversely affect our ability to compete, increase our costs or otherwise adversely affect our business, brand, market share, and results of operations.
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Acquisitions, investments, licensing arrangements and joint ventures could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.
We may evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy, including business combinations, acquisitions and dispositions of businesses, technologies, services, and other assets, as well as strategic investments, licensing arrangements and joint ventures. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these transactions could be material to our financial condition and results of operations.
These transactions involve significant challenges and risks. Some of the areas where we may face risks, or difficulties include:
complete an applicable transaction. Future acquisitions may also require us to issue additional equity securities, spend our cash, or incur debt (and increased interest expense), liabilities and amortization expenses related to intangible assets or write-offs of goodwill, which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders. Also, the anticipated benefit of many of our acquisitionsan acquisition may not materialize.
will be able to source Metaverse travel experiences as successfully as anticipated.
Risks Related to Legal Uncertainty
We may become subject to shareholder lawsuits over alleged securities violations due to volatile stock price and this can be burdensome to management and costly to defend.price.
Shareholder lawsuits for securities violations are often launched against companies whose stock price is volatile. Such lawsuits involving the Company would require management’s attention to defend, which may distract attention from operating the Company. In addition, even if the lawsuit is meritless, the Company may incur substantial costs to defend itself and/or settle such claims, to minimize the distraction and costs of defense. Such lawsuits could result in judgments against the Company requiring substantial payments to claimants. Such costs may materially impact our results of operations and financial condition.
We may become subject to burdensome government regulations and legal uncertainties affecting the Internet which could adversely affect our business.
The Company is subject to laws and regulations affecting its domestic and international operations in a number of areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of employment, related laws and regulations, advertising, digital content, consumer protection, real estate, billing, e-commerce, promotions, intellectual property, ownership and infringement, tax, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy, requirements, anti-competition, health and safety.
safety, and vacation packaging. Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction,across jurisdictions, further increasing the costcosts of compliance and doing business. For example, the Company and Jack’s Flight Club employ employees and engage contractors in various countries and therefore could be subject to misclassification or tax claims related to such arrangements or increased costs to ensure continued compliance as both companies grow and add to their workforce. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make the Company’s services less attractive, to the Company’s customers, delay the introduction of new products, in one or more regions, or cause the Company to change or limit its business practices or incur more costs to comply or defend itself. The Company hasWe have implemented policies and procedures designed to ensure compliance, with applicable laws and regulations, but there can be no assurance that the Company’sour employees, contractors, partners, or agents will not violate such laws and regulations or the Company’s policies and procedures.
The implementation of the CARD Act and similar state and foreign laws may harm our Local Deals and Getaways business.
Vouchers which are issued under our Local Deals and Getaway may be considered gift cards, gift certificates, stored value cards or prepaid cards (“gift cards”) and therefore governed by, among other laws, the Credit CARDCard Act of 2009 (the "CARD Act"“CARD Act”), and state laws governing gift cards, stored value cards and coupons.cards. Other foreign jurisdictions have similar laws in place, in particular European jurisdictions where the European E-Money Directive
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regulates the business of electronic money institutions. Many of these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the imposition of certain fees. For example, if the vouchers are subject to the CARD Act and are not included in the exemption for promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the voucher, or the promotional value, which is the add-on value of the voucher in excess of the price paid, or both, may not expire before the later of (i) five years after the date on which the voucher was issued; (ii) the voucher’s stated expiration date (if any); or (iii) a later date provided by applicable state law. Purported class actions against other companies have been filed in federal and state court claiming that coupons similar to the vouchers are subject to the CARD Act and various state laws governing gift cards and that the defendants have violated these laws by issuing the coupons with expiration dates and other restrictions. In addition, investigations by certain state attorney general offices have been launched against other companies with regards to similar issues. If similar claims are asserted against the Company in respect of the Local Deals and Getaway Getaways vouchers and are successful, we may become subject to fines and penalties and incur additional costs. In addition, if federal or state laws require that the face value of our vouchers have a minimum expiration period beyond the period desired by a merchant for its promotional program, or no expiration period, this may affect the willingness of merchants to issue vouchers in jurisdictions where these laws apply. For unredeemed vouchers, similar laws in other jurisdictions require us or merchants to honor the face value of vouchers sold, after the redemption period. For example, in Germany, certain consumer protection laws require us to refund consumers for approximately four years after the purchase date for the amount of the face value of purchased vouchers which remains unredeemed at the end of the redemption period. Therefore, we do not recognize the unredeemed amounts as revenue until after we are not subject to these laws. There may be similar laws in other countries or provinces that require similar practices. Such developments may materially and adversely affect the profitability or viability of our Local Deals and Getaway.Getaways vouchers.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to regulate our transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in Internet commerce. New or revised international, federal, state or local tax regulations may subject us or our members to additional sales, income and other taxes. We cannot predict the effect of currentany attempts to impose sales, income or other taxes on commerce over the Internet. New or revised taxes and, in particular, sales taxes, VATValued Added Tax and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. For example, due to media sales for travel agents, clients or partners in certain states with economic nexus provisions, we could have potential tax exposure. We are continuing to evaluate states and countries where we could have such exposure, including for Jack’s Flight Club. New taxes could also create significant increases in internal costs necessary to capture data, and collect and remit taxes.costs. Any of these events could have an adverse effect on our business and results of operations.
results.
We may suffer liability as a result of information retrieved from or transmitted over the Internet and claims related to our service offerings.
We may be sued for defamation, civil rights infringement, negligence, patent, copyright or trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims relating to information that is published or made available on our websites or service offerings we make available (including provision of an application programming interface platform for third parties to access our website, mobile device services and geolocation applications). These types of claims have been brought, sometimes successfully, against online services in the past.available. The fact that we distribute information via e-mailemail may subject us to additional potential risks, such as liabilities or claims resulting from unsolicited e-mailemail or spamming, lost or misdirected messages, security breaches, illegal or fraudulent use of e-mailemail or interruptions or delays in e-mailemail or mobile service.service, etc. We have also seen an increase in claims relating to the Federal Wire Tap Act and “trap and trace” software in connection with the California Invasion of Privacy Act. These risks are enhancedelevated in certain jurisdictions, outside the U.S., where our liability for such third-party actions may be less clear and we may be less protected. In addition, we could incur significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of these events occurs, our business could be materially and adversely affected.
We are subject to risks associated with information disseminated through our websites and applications, including consumer data, content that is produced by our editorial staff and errors or omissions related to our product offerings. Such information, whether accurate or inaccurate, may result in our being sued by our advertisers, merchants, members or third parties and as a result our revenue and reputationlawsuit, which could be materially and adversely affected.
affect our business. In addition, we may acquire personal or confidential information, including credit card information, from users of our websites and mobile applications, related to our Local Deals and hotel booking platform.applications. Our existing security measures may not be successful in preventing security breaches. For example, outsideOutside parties may attempt to fraudulently induce employees, merchants or customers to disclosedisclosure of sensitive information in order to gain access to our secure systems and networks.networks or to take over customer accounts. A party (whether internal, external, an affiliate or unrelated third party) that is able to circumvent our security systems could steal consumer information or transaction dataproprietary or other proprietary information. In the last few years, several major companies, such as Target, Home Depot, Zappos, LinkedIn and Sony, have experienced high-profile security breaches that exposed their customers' personalsensitive information. A security breach at any travel service provider, hotel, payment processor, GDS or other third party travelthird-party supplier such as the security breach experienced by Sabre, could result in negative publicity and exposure, as well as damage to the reputations of the hotels impacted by the incident.
exposure.
While we strive to use commercially acceptable means to protect customer personal information,data, no method of transmission over the Internet, or method of electronic storage, is 100% secure. Further, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequentlyCyberattacks are increasing in frequency and oftensophistication and are not recognized until launched against a target,
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evolving. Consequently, we may be unable to anticipate these techniquesattacks or to implement adequate preventative measures. These issues are likelyWe have experienced and responded to become more difficult to manage ascyberattacks, which we expandbelieve have not had a significant impact on our systems or the numbersecurity of places where we operate and as the tools and techniques used in such attacks become more advanced.any data maintained by us. Security breaches or the unauthorized disclosure of customer personal information could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability and subject us to regulatory penalties and sanctions. Any failure or perceived failure by us, or our service providers, to comply with the privacy policies,any privacy-related obligations to users or other third parties, or privacy related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against the companyCompany by consumer advocacy groups or others and could cause our customers and members to lose trust in the company,us, which could have an adverse effect on our business. If our security measures are breached, or if our services are subject to attacks that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services,business and we may incur significant legal and financial exposure.
We could also be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, resultsbusiness. There are a number of operationsproposals for enactment or financial condition. For example, we, like many online companies, have been utilizing the U.S.- E.U. Safe Harbor framework and relying on this method to ensure the appropriate transfermodification of data betweenprivacy laws pending or proposed in other jurisdictions (including various states across the U.S.United States), including laws and Europe. However, on October 6, 2015, the European Court of Justice ruledregulations which dictate whether, how and under what circumstances we can transfer, process, or receive certain data that this 15-year old Safe Harbor pact is no longer valid.critical to our operations and consent-related requirements for email marketing. While we do not “sell” personal data and/or do not engage in “behavioral advertising”, as each are evaluatingdefined under the various laws and implementing alternatives,regulations in different jurisdictions, it is difficult at this pointpossible that these definitions may change and/or that regulators may not agree with our interpretations. Complying with these varying requirements could cause us to know whether this ruling will have an impact onincur substantial costs or require us to change our business. In addition, the European Union has adopted a new data protection legal framework, effective in May 2018, which may resultbusiness practices in a greater compliance burden for companies, including us, with users in Europe and increased costs of compliance.manner adverse to our business. To the extent that European regulatory authorities impose fines on the Company or require changes to the Company's business practices, the Company'sCompany’s business and results of operations could be materially and adversely affected. We also could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if
Claims have been asserted against us relating to shares not issued in our 2002 merger.
shares. Beginning in 2010, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares. The Company recorded charges for the estimated settlements with these states of $20.0 million, $3.0 million and $22.0 million in 2011, 2012 and 2013, respectively. In 2014, the Company released $7.6 million of the reserve related to the completion of settlements with the states.
U.S. Although the Company has settled the states' unclaimed property claims with all states, the Company may still receivereceives inquiries from certain potential NetsurferNetsurfers promotional stockholders that had not provided their state of residence to the Company by April 25, 2004.Company. Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Travelzoo.com Corporation, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period. This voluntary program isThe Company did not available for individuals whose promotional shares have been escheated to a state by the Company, except those individuals for which their residence was unknown to the Company. The accompanying consolidated financial statements include a charge formake any material payments under this voluntary program in general2023 and administrative expenses of $1,000, $2,000 and $1,000 for the years ended December 31, 2017, 2016 and 2015, respectively.
2022. The total cost of this voluntary program is not reliably estimable because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the potential liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Travelzoo.com Corporation in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Travelzoo.com Corporation.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as the European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and services. For these purposes, financial institutions are broadly defined to include money services businesses such as money transmitters, check cashers and providers of prepaid access cards. Examples of anti-money laundering requirements imposed on financial institutions include customer identification and verification programs, suspicious activity monitoring and reporting, record retention policies and procedures and transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations based, in part, upon the closed loop nature and other characteristics of vouchers and our role with respect to the distribution of vouchers to members. However, the Financial Crimes Enforcement Network a division of the U.S. Department of the Treasury tasked with implementing the requirements of the Bank Secrecy Act, recentlypreviously issued final rules regarding the scope and requirements for non-bank parties involved in stored value or prepaid access cards, including obligations on sellers or providers of “prepaid access”. Under the final rule, providers or sellers of closed loop vouchers, such as those offered through the Local Deals and Getaway programs, Getaways, would only be subject to registration if the vouchervouchers exceed $2,000 in total value or if they are sold in aggregate amounts exceeding $10,000 to any single person in one day. Should the $2,000 limit be exceeded or should more than $10,000 in aggregate vouchers be sold to any individual person (sales to businesses for resale or distribution are excluded) then we may be deemed either a seller or provider of prepaid access subject to regulation. In the event that we become subject to thethese requirements of the Bank Secrecy Act or any other anti-money laundering lawlaws or regulationregulations imposing obligations on us as a money services business, our
regulatory compliance costs to meet these obligations would likely increase which could reduce our net income. In addition, the costs for third parties to sell vouchers would increase, which may restrict our ability to enlist third parties to issue vouchers.
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Many states and certain foreign jurisdictions impose license and registration obligations on those companies engaged in the business of money transmission, with varying definitions of what constitutes money transmission. We currently believe that we are not a money transmitter, given our role and the product terms of Travelzoo vouchers or other Travelzoo products or services. However, a successful challenge to our position or expansion of laws could subject us to increased compliance costs and delay our ability to offer our products or services in certain jurisdictions, pending receipt of necessary licenses.
Our internal control over financial reporting may not be effective andwhich could impact our independent registered public accounting firm maybusiness.
The SEC approved amendments in 2018 that raised the cap for status as a “smaller reporting company”. Travelzoo qualified as a smaller reporting company since 2020, meaning it is not be able to attest assubject to the effectivenessSOX 404(b) requirement of suchhaving an auditor attestation report on internal controls, which could have a significant and adverse effect on our business.
We may be unable to protect our registered trademark or other proprietary intellectual property rights.rights and may face liability from intellectual property litigation.
Our success depends to a significant degree upon the protection of the Travelzoo brand name. We rely uponon a combination of copyright trade secret and trademark laws, as well as non-disclosure and other contractual arrangements to protect our intellectual property (“IP”) rights. The steps we have taken to protect our proprietaryIP rights, however, may not always succeed in deterring misappropriation of proprietary information.
information or preventing improper utilization of the Travelzoo brand name. We have registered the Travelzoo trademark and Jack’s Flight Club trademarks in the U.S., Australia, Canada, China, Hong Kong, Japan, South Korea, Taiwan, the European Union, the U.K. and othervarious jurisdictions. If we are unable to protect our rights, in the mark in North America, Europe, and Asia Pacific, a key element of our strategy of promoting Travelzoo as a brand could be disrupted and our business could be adversely affected. We may not always be able to detect unauthorized use of our proprietary information or take appropriate steps to enforce our intellectual propertyIP rights. In addition, the validity, enforceability, and scope of protection of intellectual property in Internet-related industries are uncertain and still evolving. The laws of countries in which we may market our services in the future are uncertain and may afford little or no effective protection of our intellectual property.IP. The unauthorized reproduction or other misappropriation of our proprietary technology could enable third parties to benefit from our technology and brand name without paying us for them.us. If this were to occur, our business could be materially adversely affected.
We cannot be certain that our products, content and brand names do not or will not infringe valid patents, copyrights or other intellectual propertyIP rights held by third parties. We expect that infringement claims in our markets will increase in number as more participants enter the markets. We may be subject to legal proceedings and claims from time to time relating to the intellectual propertyIP of others in the ordinary course of our business. We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit, and such claims could result in a significant diversion of the efforts of our management personnel.merit. Successful infringement claims against us may result in monetary liability or a material disruption in the conduct of our business. We endeavor to defend our intellectual propertyIP rights diligently, but intellectual property litigation is extremely expensive and time consuming, and has and is likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in monetary liability and resolutionResolution of claims may require us to obtain licenses to use intellectual propertyIP rights, belonging to third parties, which may be expensive to procure.
Our stock price has been volatile historically and may continue to be volatile.
The trading price of our common stock has been and may continue to be subject to wide fluctuations. During the twelve months ended December 31, 2023, the closing price of our common stock on NASDAQ ranged from $4.51 to $10.45. Our stock price may fluctuate in response to a number of factors, such as quarterly variations in operating results; announcements by us or our competitors; changes in financial estimates and recommendations by securities analysts; the operating and stock price performance of comparable companies; news reports relating to trends in our markets or general economic conditions; the level of demand for our stock, including the amount of short interest in our stock; stockholder collateral arrangements, and cash requirement on funds or stockholders that result in stockholder trades; and repurchases of our common stock, including failure to meet internal or external expectations around the timing or price of share repurchases and any reductions or discontinuances of repurchase activities. There are several products offered in the market that allow stockholders to hedge stock, pledge their stock for collateral or engage in short selling, which can negatively impact the price of our stock. The Company does not prohibit these arrangements but does have strict policies against trading with material non-public information. Our stock price
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may be volatile given that operating results may vary from the expectations of securities analysts and investors, which are beyond our control. In the event that our operating results fall below expectations, the trading price of our common shares may decline significantly. Moreover, fluctuations in our stock price and our price-to-earnings multiple may have made our stock attractive to hedge or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis. In addition, the stock market in general, and the market prices for Internet-related companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Negative market conditions could adversely affect our ability to raise additional capital or the value of our stock in connection with merger and acquisition activities.
We have a significant shareholder.
Ralph Bartel, who founded Travelzoo, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro. Azzurro is the Company’s largest shareholder, and as of December 31, 2023, holds approximately 40.2% of the Company's outstanding shares. Azzurro previously held greater than 50% ownership until approximately 2018 and again from late 2022 until Q2 2023 and should Azzurro purchase additional shares or should the Company repurchase additional shares of its common stock, Azzurro’s ownership percentage could increase again, potentially above 50%, resulting in the Company being a controlled company again. The Company already has in place applicable corporate governance processes and procedures necessary for a controlled company to ensure independence (e.g., board of directors with majority independent directors, committees comprised solely of independent directors, etc.). Holger Bartel, the Company’s Global Chief Executive Officer, is Ralph Bartel’s brother and holds approximately 3.8% of the Company’s outstanding shares. It is possible that the interests of Azzurro may conflict with those of the Company or its other stockholders in the future. As a result of Azzurro’s ownership interests and voting power, they could be in a position to influence significant corporate actions. Our other stockholders will therefore have limited influence and control on matters requiring stockholder approval and this significant ownership position could discourage others from initiating any potential merger or takeover that may otherwise be beneficial to Travelzoo stockholders.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The Company, including its Board of Directors, Audit Committee, management and internal legal, information technology (IT) and finance teams, recognize the importance of safeguarding the Company’s data, information systems and technology assets, as it is a critical part of the trust that we have built with our members, partners and employees.
Risk Management and Strategy
Our approach involves an annual review of our established IT systems and vendor relationships, to assess salient risks and discuss mitigation procedures, as well as the establishment of an Incident Response Team appointed to manage cybersecurity risk, which meets at least twice per year. The Incident Response Team is led by the Company’s Systems Administrator and Cybersecurity Analyst, and includes employees from different functions and levels of the organization, including the Head of Engineering (most senior IT leader), the General Counsel and Head of Global Functions (executive-level legal), the Global Head of Business Services (most senior business operations leader), as well as representatives from finance, marketing, and customer service. The team is also supported by external vendors and consultants, as needed (for example, specialized cybersecurity legal counsel, specialized IT cybersecurity agencies and Sarbanes-Oxley (SOX) compliance/audit consultants to assist with internal controls review).
The Incident Response Team follows industry best-practices for Payment card industry (PCI) compliance and cybersecurity. Starting in Q1, the team reviews the Company’s plan and policy for cybersecurity incident response, making updates as needed to reflect changes in the systems, processes or requirements of the organization. The team then coordinates a broader meeting where a testing incident is provided and discussed, to ensure that everyone across the organization is aligned and understands the process should an incident arise in the future. The scenarios involve realistic threats to prompt discussion and practice in the application of the Company’s policies. The Company established this process with the support of outside consultants to ensure it aligns with industry best practices. It is customized to address the most prominent IT and cybersecurity risks based on the Company’s assessments. Any significant changes in policies, risk profiles, internal practices, etc. are reported to the Company’s Chair of the Board and Board of Directors, as needed.
Separately from the Incident Response Team, the Company requires all employees to complete an annual security training and the Company’s Head of Corporate Systems evaluates security features and compliance with security requirements by employees on an ongoing basis, in consultation with legal.
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Given the importance of our member data, the Company has also appointed an internal Data Protection Officer (DPO), who is a member of the Company’s legal function and who has received outside training and qualifications. The Company’s DPO reviews any changes in rules, requirements, internal policies and procedures and ensures the Company’s compliance for data privacy globally is up-to-date (including vendor relationships, privacy policy, data subject access request processes, website terms, employee processes, etc.). The DPO also administers annual data privacy training to all employees and reviews processes and security procedures with the Head of Corporate Systems and IT team, to ensure no areas of exposure or material risk for the Company’s data.
We rely on certain third-party computer systems and third-party service providers in connection with providing some of our services (including our hotel platform and email newsletters). We also depend upon various third parties to process payments for our voucher transactions around the world. These third-party business partners, service providers, and consultants need to access certain of our member and other data, and connect to our computer networks. We define expected security and privacy requirements through our contracting processes with third parties and we perform third-party cyber risk assessments to monitor the cyber risk management efforts of third parties as needed.
Although we expend significant internal resources to protect against security breaches, our existing security measures may not be successful in preventing all attacks on our systems. We have experienced cybersecurity incidents and threats, including malware, phishing, partner and customer account takeover attacks, and denial-of-service attacks on our systems. We do not believe these cybersecurity incidents have had a materially adverse effect on our Company, including our business strategy, results of operations, or financial condition. For further discussion, please review our Risk Factors.
Governance
The Board, in coordination with the Audit Committee, oversees the Company’s risk management program, which includes evaluation of material cybersecurity-related risks as needed. The Audit Committee receives from time-to-time presentations and reports from both Company management and third parties, as appropriate, that address cybersecurity and data protection topics, including evolving standards, third-party and independent reviews, technology trends and information security considerations. The Audit Committee meets at least quarterly with Company management and the Company’s external SOX consultant to discuss internal IT controls and, in reviewing the controls, exercises oversight into the Company’s IT processes and any areas of risk. Additionally, should an incident arise that is material, the Incident Response Team promptly apprises the Chair of the Board of Directors and the Audit Committee and provides ongoing updates until such incident has been resolved. At regularly scheduled Board meetings, the Audit Committee Chair provides the Board with an update as needed on any significant matters discussed, reviewed, considered and approved by the committee since the last regularly scheduled Board meeting.
Item 2. Properties
We are headquartered in New York, New York, where we occupy approximately 13,500 square feet of leased office space. We have leased offices in Asia Pacific for operations in China, Australia, Hong Kong, Singapore, and Japan, including offices in Beijing, Guangzhou, Hong Kong, Shanghai, Singapore, Sydney, and Tokyo. We also have leased offices for our Europe operations in France, Germany, Spain, and the U.K., including offices in Barcelona, Berlin, Hamburg, London, Manchester, Munich, and Paris. In addition to our New York office, we have several leased offices throughout the U.S. and Canada for our North America operations, including offices in Chicago, Illinois; Austin, Texas; Las Vegas, Nevada; Los Angeles, California; Miami, Florida; Mountain View, California; San Francisco, California;Florida and Toronto, Ontario;Ontario. We also have leased offices for our Europe operations in Germany, Spain, and Vancouver, British Columbia.
the U.K., including offices in Barcelona, Berlin, London, and Munich.
We believe that our leased facilities are adequate to meet our current needs; however, we intend to expand our operations and therefore may require additional facilities in the future. We believe that such additional facilities are available.
Item 3. Legal Proceedings
The information set forth under “Note 4 - Note 6–Commitments and Contingencies”Contingencies to the accompanying consolidated financial statements included in Part II, Item 8 of this report is incorporated herein by reference.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Since August 18, 2004, our common stock has been trading on the NASDAQ Global Select Market under the symbol “TZOO.” The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by NASDAQ.
High | Low | ||||||||||
| 2023: | |||||||||||
| Fourth Quarter | $ | 10.45 | $ | 5.08 | |||||||
| Third Quarter | $ | 8.83 | $ | 5.83 | |||||||
| Second Quarter | $ | 10.42 | $ | 5.64 | |||||||
| First Quarter | $ | 6.04 | $ | 4.51 | |||||||
| 2022: | |||||||||||
| Fourth Quarter | $ | 6.35 | $ | 4.11 | |||||||
| Third Quarter | $ | 6.80 | $ | 4.43 | |||||||
| Second Quarter | $ | 8.04 | $ | 5.71 | |||||||
| First Quarter | $ | 10.33 | $ | 5.30 | |||||||
High | Low | |||||
| 2017: | ||||||
| Fourth Quarter | $ | 9.00 | $ | 5.95 | ||
| Third Quarter | $ | 11.20 | $ | 7.75 | ||
| Second Quarter | $ | 10.95 | $ | 8.90 | ||
| First Quarter | $ | 10.35 | $ | 8.35 | ||
| 2016: | ||||||
| Fourth Quarter | $ | 12.77 | $ | 9.15 | ||
| Third Quarter | $ | 13.16 | $ | 7.72 | ||
| Second Quarter | $ | 8.23 | $ | 7.56 | ||
| First Quarter | $ | 8.55 | $ | 6.71 | ||
As of February 9, 2018,March 18, 2024, there were approximately 198175 stockholders of record of our shares.
Dividend Policy
Travelzoo has not declared or paid any cash dividends since inception and does not expect to pay cash dividends for the foreseeable future. The payment of dividends will be at the discretion of our boardTravelzoo’s Board of directorsDirectors and will depend upon factors such as future earnings, capital requirements, our financial condition and general business conditions.
Sales of Unregistered Securities
registered by the Company pursuant to an S-3 registration statement made effective on February 15, 2023.
Repurchases of Equity Securities
We repurchased 3,000 shares600,000 of our equity securities during the three months ended December 31, 2017.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Shares that May Yet be Purchased Under the Programs (1) | ||||||||
| October 1, 2017 - October 31, 2017 | 3,000 | $ | 8.78 | 3,000 | — | |||||||
| November 1, 2017 - November 30, 2017 | — | $ | — | — | — | |||||||
| December 1, 2017 - December 31, 2017 | — | $ | — | — | — | |||||||
| 3,000 | 3,000 | |||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Shares that May Yet be Purchased Under the Programs | |||||||||||||||||||
| October 1, 2023 - October 31, 2023 | 107,065 | $ | 7.04 | 107,065 | 892,935 | ||||||||||||||||||
| November 1, 2023 - November 30, 2023 | 377,527 | $ | 8.25 | 377,527 | 515,408 | ||||||||||||||||||
| December 1, 2023 - December 31, 2023 | 115,408 | $ | 9.95 | 115,408 | 400,000 | ||||||||||||||||||
| 600,000 | 600,000 | ||||||||||||||||||||||
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Performance Graph
The following graph compares, for the dates specified, the cumulative total stockholder return for Travelzoo, the NASDAQ Stock Market (U.S. companies)Composite Index (the “NASDAQ Market Index”), and the Standard & Poor's 500 Publishing Index (the “S&P 500 Publishing”).Russell 2000 Index. Measurement points are the last trading day of each of the Company's fiscal years ended December 31, 2013,2019, December 31, 2014,2020, December 31, 2015,2021, December 31, 2016,2022 and December 31, 2017.2023. The graph assumes that $100 was invested on December 31, 20112018 in the Common Stock of the Company, the NASDAQ Market Index and the S&P 500 PublishingRussell 2000 Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not indicative of future stock price performance.
Measurement Point | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 | ||||||||||||||
| Travelzoo | $ | 100 | $ | 109 | $ | 96 | $ | 96 | $ | 45 | $ | 97 | ||||||||
| NASDAQ Market Index | $ | 100 | $ | 135 | $ | 194 | $ | 236 | $ | 158 | $ | 226 | ||||||||
| Russell 2000 Index | $ | 100 | $ | 124 | $ | 146 | $ | 167 | $ | 131 | $ | 150 | ||||||||
Item 6. Reserved
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Measurement Point | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||||
| Travelzoo | $ | 100.00 | $ | 112.27 | $ | 66.46 | $ | 44.08 | $ | 49.50 | $ | 33.97 | ||||||
| NASDAQ Market Index | $ | 100.00 | $ | 138.32 | $ | 156.85 | $ | 165.84 | $ | 178.28 | $ | 230.18 | ||||||
| Russell 2000 Index | $ | 100.00 | $ | 136.82 | $ | 141.87 | $ | 133.57 | $ | 159.93 | $ | 180.82 | ||||||
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||
| Revenues | $ | 106,524 | $ | 114,263 | $ | 123,961 | $ | 134,243 | $ | 145,314 | |||||||||
| Income (loss) from operations | 4,545 | 10,186 | 3,820 | 13,798 | (2,325 | ) | |||||||||||||
| Income (loss) from continuing operations, net of taxes | 1,592 | 6,007 | 8,523 | 10,323 | (8,939 | ) | |||||||||||||
| Income from discontinued operations, net of taxes | 1,938 | 624 | 2,341 | 2,739 | 2,357 | ||||||||||||||
| Net income (loss) | $ | 3,530 | $ | 6,631 | $ | 10,864 | $ | 13,062 | $ | (6,582 | ) | ||||||||
| Income (loss) per share—basic: | |||||||||||||||||||
| Continuing operations | $ | 0.12 | $ | 0.43 | $ | 0.58 | $ | 0.70 | $ | (0.58 | ) | ||||||||
| Discontinued operations | 0.15 | 0.04 | 0.16 | 0.18 | 0.15 | ||||||||||||||
| Net income (loss) per share | $ | 0.27 | $ | 0.47 | $ | 0.74 | $ | 0.88 | $ | (0.43 | ) | ||||||||
| Income (loss) per share—diluted: | |||||||||||||||||||
| Continuing operations | $ | 0.12 | $ | 0.43 | $ | 0.58 | $ | 0.70 | $ | (0.58 | ) | ||||||||
| Discontinued operations | 0.15 | 0.04 | 0.16 | 0.18 | 0.15 | ||||||||||||||
| Net income (loss) per share | $ | 0.27 | $ | 0.47 | $ | 0.74 | $ | 0.88 | $ | (0.43 | ) | ||||||||
| Shares used in per share calculation from continuing operations—basic | 12,882 | 13,997 | 14,722 | 14,768 | 15,269 | ||||||||||||||
| Shares used in per share calculation from discontinued operations—basic | 12,882 | 13,997 | 14,722 | 14,768 | 15,269 | ||||||||||||||
| Shares used in per share calculation from continuing operations—diluted | 12,894 | 13,997 | 14,722 | 14,809 | 15,269 | ||||||||||||||
| Shares used in per share calculation from discontinuing operations—diluted | 12,894 | 13,997 | 14,722 | 14,809 | 15,355 | ||||||||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (In thousands) | |||||||||||||||||||
| Cash and cash equivalents | $ | 22,553 | $ | 26,838 | $ | 35,128 | $ | 55,417 | $ | 68,668 | |||||||||
| Working capital | $ | 7,646 | $ | 14,643 | $ | 16,046 | $ | 36,259 | $ | 29,194 | |||||||||
| Total assets | $ | 45,672 | $ | 53,530 | $ | 68,579 | $ | 93,307 | $ | 119,440 | |||||||||
| Stockholders' equity | $ | 13,078 | $ | 18,064 | $ | 21,387 | $ | 35,827 | $ | 30,096 | |||||||||
Item 7. 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
Travelzoo, the club for travel enthusiasts, is a global Internet media company. Travelzoo® provides our 28its 30 million members insider dealswith exclusive offers and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. With more than 25 offices worldwide, weWe have our finger on the pulse of outstanding travel, entertainment and lifestylelocal experiences. For over 15 years we have workedWe work in partnership with more than 2,000than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.
Our most important products and services are the very best deals.
Travelzoo membership has historically been free, however, beginning in 2024, new members in the United States, Canada, United Kingdom and Germany are charged an annual fee of $40 (or local equivalent), with the 2024 annual fee waived for existing members as of December 31, 2023. For any subscription revenue derived from the paid membership, we recognize revenue monthly pro rata over the subscription period.
We receivealso 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 $71,000 and $25,000 in royalties in 2023 and 2022, respectively. Under the face valuelicensing agreements, Travelzoo's existing members in the applicable territories continue to be owned by the Company.
In March 2022 we announced the development of, and in May 2023 we launched Travelzoo META, to extend the voucher fromrange of experiences we offer consumers to the local businesses.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. On December 30, 2022, we acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), to support Travelzoo META in sourcing prospective 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 consolidated financial statements included in Part II, Item 8 of this report, which is incorporated herein by reference for further information regarding the acquisition of MTE.
In March 2020, Travelzoo exited its loss-making Asia Pacific Airways, Ctrip, Emirates, Etihad, Expedia, Fairmont Hotelsbusiness and Resorts, Hawaiian Airlines, Hilton Hotels & Resorts, InterContinental Hotels Group, JPB Corporation, Lion World Travel, Lufthansa, Nexus Holidays, Princess Cruises, Royal Caribbean, Singapore Airlines, Starwood Hotels & Resorts Worldwide, Tourism Australia, Tourism Ireland, and United Airlines.
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 the 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 of taxes,$35,000 and $25,000 from the licensee for the currentyears ended December 31, 2023 and prior periods presented. See "Note 11: Discontinued Operations"2022, respectively.
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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 accompanying unaudited consolidated financial statementlicensee for further information.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 $36,000 and $0 from the licensee for the years ended December 31, 2023 and 2022, respectively.
Reportable Segments
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 revenues, consistingfees from two categories of revenue: Travel and Local.
The “Travel” category consists primarily of listing(a) advertising fees paid by travel entertainment and local businesses to advertisecompanies for the publishing of their offers on Travelzoo’s media properties. Listingproperties and (b) commission generated from the sale of Getaways vouchers. Advertising fees aremay be based on audience reach, placement in email newsletters or on media properties, number of listings, number of impressions, numberclicks, and/or actual sales. We typically recognize advertising revenues upon delivery of emails or clicks, number of referrals,as tracked by our internal platform or percentagethird-party platforms, in the period of the face value of vouchers sold. Insertionapplicable insertion orders, which are typically for periods between one month and twelve months and are not automatically renewed. Merchant agreements for Local Deals and Getaway advertisers are typically for twelve months and are not automatically renewed. We have two separate groups of our advertising products: Travel and Local.
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 January 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 December 31, 2023 and 2022, the Company had approximately $5.2 million and $8.1 million of unredeemed vouchers that had been sold, hotel booking stays orrespectively, 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 $268,000 and $1.3 million as of December 31, 2023 and 2022for these unredeemed vouchers which is recorded as a reduction of revenues on the consolidated statements of operations, and accrued expense and other items sold. We recognize revenueon the consolidated balance sheet.
Merchant payables of $20.6 million as of December 31, 2023 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 deliveryexpiration. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the e-mails, deliveryestimate as revenues in the same period.
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The "Local" category consists of the clicks, over the period of placement of the advertising, upon hotel booking stays and upon the sale of the vouchers or other items sold.
Jack's Flight Club
Jack’s Flight Club generates revenues from paid subscriptions by purchasers uponmembers. Subscription options are quarterly, semi-annually, and annually. We recognize subscription revenues monthly pro rata over the respective subscription periods.
Trends in Our Business
Our ability to generate revenues in the future depends on numerous factors, suchincluding 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 increaseenhance our audience reach and advertising rates, our ability to have sufficient supply of hotels offered at competitive rates, and our ability to develop and launch new products.
Factors relating to commission-based hotel revenue as we expandcompetitors 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 hotel platform,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 may result in lower revenue depending on volume of hotel bookings.have come under increasing scrutiny for their carbon footprints.
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 takecommission rate earned by us from the merchants for vouchervouchers 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.
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Our ability to continue to generategenerating revenues through advertising, revenuecommissions and subscriptions depends heavily upon our ability to maintain and grow an attractive audience for our publications. We monitor our membersmembership 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 companies. The costs to grow our audience have had, and we expect will to continue to have, a significant impact on our financial results and can vary from period to period. We may haveWith the introduction of membership fees in 2024, our former user acquisition strategies and marketing tactics are no longer applicable for the Travelzoo membership base, and we are developing new user acquisition strategies whose timeframes to increasebecome effective are inherently uncertain. While we are initially reducing our expenditures on acquiring traffic as we test new strategies for efficacy, in time we may need to continueincrease these expenditures to maintain or grow or maintain our audience and reach of our publications due to competition.publications. We continue to see a shift in the audience tousers accessing our services through mobile devices and social media. We are addressingmedia and, therefore, anticipate continuing to address this growing channel of our audience through development of our mobile applications and throughincreased 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 increasean important factor for our advertising rates only ifis the reach of our publications, increases.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.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, such as intense competition in our industry. We have not had any significant rate increase in recent years due toincluding intense competition in our industry. Even if we increase our rates, the increased price may reduce the amountnumber 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 ifchange in relation to volume and terms with third-party partners of the face valueTravelzoo network, the incurrence of merchant processing fees from the sale of vouchers that we sell for Local Deals and Getaway increases or the total numberGetaways and payment of vouchers sold increases because we have credit cardmembership fees, based upon face valuechanges in refund request trends and provisioning 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 are expected to increase due to our effort to develop our hotel booking platform as well.service. We expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter. Some of the fluctuations may be significant and may have a material impact on our results of operations.
We do not know what our sales and marketing expenses as a percentage of revenue will be in future periods. Increased competitionChanges 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.
In addition to the type of membership offered, we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys, the quality of the members we acquire, our ability to manage our member acquisition efforts successfully, the regions we choosetarget to acquire new members and the relative costs for that region, and the degree of competition in our industry. WeAll else equal, increased competition may deciderequire us to accelerateincrease advertising for our brand and advertisers’ deals.
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Beside member acquisition for various strategic and tactical reasons and, as a result, increase our marketing expenses. We expect the average cost per acquisition to increase with our increased expectations for the quality of the memberscosts, we acquire. We may see ana unique opportunity for a brand marketing campaign, that willexperience 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 of 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. Further, we expect to continue our strategy over time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations. For example, in August of 2015 we acquired our Asia Pacific business, with the intent to increase our investment in audience in this region. Due to the continued desire to grow our business in Asia Pacific, Europe and North America, we expect relatively high level of sales and marketing expenses in the foreseeable future.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 expenseexpenses 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.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 have increased and may continue to increase our spending on sales and marketing to increase the number of our members and address the growing audience from mobile and social media channels, as well as to increase our analytic capabilities to continuously improve the presentation of our offerings to our audience.
We do not know what our product development expenses as a percentage of revenue will be in future periods. 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 presentationreceptivity of our offerings to our audience.member audience and advertiser clients. We expect our efforts onin developing our productproducts and services will continue to be a focus in the future, which may lead to increased product development expenses. This increaseIncreases in expense may be the result of an increase in headcount, the compensationfrom costs related to existingthird-party technology service providers and software licenses, headcount and the increased use of professional services. We expect our continued expansion into foreign markets and development of new advertising formats to result in a significant additional increase in our product development expenses. We expect to incur additional costs related to the development of our hotel platform capabilities, which we are developing, in part, to address the shift to mobile devices. We also may increase our investment in product development to ensure our products are suited for different regions such as Asia Pacific. In addition, we expect to incur additional costs related to the development of our search capabilities of our website and mobile applications.
We do not know what our general and administrative expenses as a percentage of revenue will be in future periods. There may be fluctuations that have a material impact on our results of operations. We expect our headcount to continue to increase in the future. The Company’s headcount is one of the main drivers of general and administrative expenses. Therefore, we expect our absolute general and administrative expenses to continue to increase. We expect our continued expansion into foreign markets to result in an increase in our general and administrative expenses. Our general and administrative expenses as a percentage of revenue may also fluctuate depending on the number of requests received related to a program under which the Company intends to make cash payments to people who establish that they were former stockholders of Travelzoo.com Corporation, whose claims were not escheated to states and who failed to submit requests to convert shares into Travelzoo within the required time period. We expect an increase in professional fees for various initiatives.
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, foreign, federal, and state and foreign countrylocal tax law and regulations and changes thereto,thereto. 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 resultingthat result in adjustments, resolution of uncertain tax positions and different treatmenttreatments for certain items for tax versus books and the acquisition of our Asia Pacific business in 2015.book purposes. We expect fluctuations in our income taxes from year to year and from quarter to quarter. Some of the fluctuationsquarter, 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. We anticipate incurring limited 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 a our trusted travel, entertainment and lifestyle brandlocal brands, increasing the value and engagement of our membership base, sourcing more exclusive and compelling offers from advertisers, and innovating with a large, high-quality user basenew experiences and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage by consumers.revenue streams. We expect to continue our efforts to grow; however, we may not grow or we may experience slower growth. Some examples of our efforts to expand our business internationally since our inception in the U.S. have been expansion to the U.K. in 2005, Canada in 2006, Germany in 2006, France in 2007, and Spain in 2008. In addition, from 2007 through 2009 we began operations in Asia Pacific, including in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. We also have launched new products to grow our revenue, such as Local Deals in 2010, Getaway in 2011, as well as our mobile application launches in 2011 and 2012. In late 2012, we bought an online hotel platform to assist in our development of a product to better serve hotels and to facilitate the development of our hotel platform. We have also increased our spending on addressing the shift of our audience to mobile devices and social media.
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 do 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. We do not know if we will have market acceptance of our new products or whether the market will continue to accept our existing products.
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Results of Operations
The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.
| 2023 | 2022 | ||||||||||
| Revenues | 100.0 | % | 100.0 | % | |||||||
| Cost of revenues | 12.9 | 14.2 | |||||||||
| Gross profit | 87.1 | 85.8 | |||||||||
| Operating expenses: | |||||||||||
| Sales and marketing | 44.7 | 46.8 | |||||||||
| Product development | 2.5 | 2.9 | |||||||||
| General and administrative | 21.4 | 25.4 | |||||||||
| Total operating expenses | 68.6 | 75.1 | |||||||||
| Operating income | 18.5 | 10.7 | |||||||||
| Other income, net | 1.7 | 3.4 | |||||||||
| Income from continuing operations before income taxes | 20.2 | 14.1 | |||||||||
| Income tax expense | 6.0 | 4.6 | |||||||||
| Income from continuing operations | 14.2 | 9.5 | |||||||||
| Income (loss) from discontinued operations, net of tax | 0.5 | (0.1) | |||||||||
| Net income | 14.7 | 9.4 | |||||||||
| Net income attributable to non-controlling interest | 0.1 | — | |||||||||
| Net income attributable to Travelzoo | 14.6 | % | 9.4 | % | |||||||
| Net income attributable to Travelzoo—continuing operations | 14.1 | % | 9.5 | % | |||||||
| Net income (loss) attributable to Travelzoo—discontinued operations | 0.5 | % | (0.1) | % | |||||||
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| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||
| Cost of revenues | 12.1 | 12.1 | 14.6 | |||||
| Gross profit | 87.9 | 87.9 | 85.4 | |||||
| Operating expenses: | ||||||||
| Sales and marketing | 53.8 | 51.1 | 52.9 | |||||
| Product development | 8.6 | 8.0 | 9.9 | |||||
| General and administrative | 21.2 | 19.9 | 19.5 | |||||
| Total operating expenses | 83.6 | 79.0 | 82.3 | |||||
| Income from continuing operations | 4.3 | 8.9 | 3.1 | |||||
| Other income (loss), net | 0.1 | (0.1 | ) | (1.0 | ) | |||
| Income from continuing operations before income taxes | 4.4 | 8.8 | 2.1 | |||||
| Income tax expense (benefit) | 2.9 | 3.5 | (4.8 | ) | ||||
| Income from continuing operations | 1.5 | 5.3 | 6.9 | |||||
| Income from discontinued operations, net of income taxes | 1.8 | 0.5 | 1.9 | |||||
| Net income | 3.3 | % | 5.8 | % | 8.8 | % | ||
Operating Metrics
The following table sets forth operating metrics in Asia Pacific,Travelzoo North America, Travelzoo Europe, and North America:Jack's Flight Club:
| Years Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Travelzoo North America | ||||||||||||||
| Total members (1) | 16,238,000 | 16,251,000 | ||||||||||||
| Average cost per acquisition of a new member | $ | 2.81 | $ | 2.81 | ||||||||||
| Revenue per member (2) | $ | 3.45 | $ | 2.82 | ||||||||||
| Revenue per employee (3) | $ | 456 | $ | 381 | ||||||||||
| Mobile application downloads | 4,158,000 | 4,126,000 | ||||||||||||
| Social media followers | 3,300,000 | 3,185,000 | ||||||||||||
| Travelzoo Europe | ||||||||||||||
| Total members (1) | 9,225,000 | 9,029,000 | ||||||||||||
| Average cost per acquisition of a new member | $ | 3.32 | $ | 2.08 | ||||||||||
| Revenue per member (2) | $ | 2.66 | $ | 2.32 | ||||||||||
| Revenue per employee (3) | $ | 240 | $ | 193 | ||||||||||
| Mobile application downloads | 2,356,000 | 2,335,000 | ||||||||||||
| Social media followers | 981,000 | 938,000 | ||||||||||||
| Jack's Flight Club | ||||||||||||||
| Total members | 2,407,000 | 1,905,000 | ||||||||||||
| Consolidated | ||||||||||||||
| Total members (1) | 31,097,000 | 30,404,000 | ||||||||||||
| Average cost per acquisition of a new member | $ | 3.02 | $ | 2.36 | ||||||||||
| Revenue per member (2) | $ | 2.78 | $ | 2.32 | ||||||||||
| Revenue per employee (3) | $ | 359 | $ | 297 | ||||||||||
| Mobile application downloads | 7,524,000 | 6,461,000 | ||||||||||||
| Social media followers | 4,499,000 | 4,123,000 | ||||||||||||
(1)Members represent individuals who are signed up to receive one or more of our email publications that present our travel, entertainment and local deals. Consolidated includes retained APAC members.
(2)Annual revenue divided by number of members at the beginning of the year.
(3)Annual revenue divided by number of employees at the end of the year (in thousands).
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| Years Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Asia Pacific | |||||||||||
| Total members | 3,621,600 | 3,598,000 | 3,484,000 | ||||||||
| Average cost per acquisition of a new member | $ | 3.08 | $ | 3.28 | $ | 2.46 | |||||
| Revenue per member (2) | $ | 2.09 | $ | 2.78 | $ | 3.01 | |||||
| Revenue per employee (3) | $ | 86 | $ | 108 | $ | 113 | |||||
| Mobile application downloads | 728,300 | 662,000 | 563,000 | ||||||||
| Social media followers | 559,000 | 531,000 | 383,000 | ||||||||
| Europe | |||||||||||
| Total members | 8,523,300 | 8,153,000 | 7,860,000 | ||||||||
| Average cost per acquisition of a new member | $ | 2.89 | $ | 2.85 | $ | 3.43 | |||||
| Revenue per member (2) | $ | 4.13 | $ | 4.69 | $ | 5.41 | |||||
| Revenue per employee (3) | $ | 222 | $ | 249 | $ | 277 | |||||
| Mobile application downloads | 1,738,481 | 1,595,000 | 1,419,000 | ||||||||
| Social media followers | 791,000 | 637,000 | 595,000 | ||||||||
| North America | |||||||||||
| Total members | 17,375,600 | 17,223,000 | 17,184,000 | ||||||||
| Average cost per acquisition of a new member | $ | 1.87 | $ | 2.15 | $ | 2.16 | |||||
| Revenue per member (2) | $ | 3.79 | $ | 3.94 | $ | 4.35 | |||||
| Revenue per employee (3) | $ | 322 | $ | 332 | $ | 314 | |||||
| Mobile application downloads | 3,015,700 | 3,049,000 | 2,734,000 | ||||||||
| Social media followers | 2,866,000 | 2,507,000 | 2,250,000 | ||||||||
| Consolidated | |||||||||||
| Total members (1) | 29,388,200 | 28,838,000 | 28,390,000 | ||||||||
| Average cost per acquisition of a new member | $ | 2.34 | $ | 2.51 | $ | 2.62 | |||||
| Revenue per member (2) | $ | 3.69 | $ | 4.02 | $ | 4.48 | |||||
| Revenue per employee (3) | $ | 241 | $ | 258 | $ | 266 | |||||
| Mobile application downloads | 5,482,481 | 5,306,000 | 4,716,000 | ||||||||
| Social media followers | 4,216,000 | 3,675,000 | 3,228,000 | ||||||||
Revenues
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top(Top 20, Standalone emails, Website, Newsflash, Travelzoo Network)Network), GetawayGetaways vouchers, and hotel platform.platform and vacation package bookings. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).
| Year Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Travelzoo North America | ||||||||||||||
| Travel | $ | 53,448 | $ | 44,446 | ||||||||||
| Local | 2,632 | 3,196 | ||||||||||||
| Total Travelzoo North America revenues | 56,080 | 47,642 | ||||||||||||
| Travelzoo Europe | ||||||||||||||
| Travel | 22,415 | 18,053 | ||||||||||||
| Local | 1,606 | 1,402 | ||||||||||||
| Total Travelzoo Europe revenues | 24,021 | 19,455 | ||||||||||||
| Jack's Flight Club | 4,172 | 3,477 | ||||||||||||
| New Initiatives | 204 | 25 | ||||||||||||
| Consolidated | ||||||||||||||
| Travel | 75,863 | 62,499 | ||||||||||||
| Local | 4,238 | 4,598 | ||||||||||||
| Jack's Flight Club | 4,172 | 3,477 | ||||||||||||
| New Initiatives | 204 | 25 | ||||||||||||
| Total revenues | $ | 84,477 | $ | 70,599 | ||||||||||
Travelzoo North America
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Asia Pacific | ||||||||||||
| Travel | $ | 6,992 | $ | 8,845 | $ | 9,355 | ||||||
| Local | 527 | 853 | 1,294 | |||||||||
| Total Asia Pacific revenues | $ | 7,519 | $ | 9,698 | $ | 10,649 | ||||||
| Europe | ||||||||||||
| Travel | $ | 29,180 | $ | 31,087 | $ | 33,603 | ||||||
| Local | 4,501 | 5,820 | 6,133 | |||||||||
| Total Europe revenues | $ | 33,681 | $ | 36,907 | $ | 39,736 | ||||||
| North America | ||||||||||||
| Travel | $ | 53,880 | $ | 54,248 | $ | 56,156 | ||||||
| Local | 11,444 | 13,410 | 17,420 | |||||||||
| Total North America revenues | $ | 65,324 | $ | 67,658 | $ | 73,576 | ||||||
| Consolidated | ||||||||||||
| Travel | $ | 90,052 | $ | 94,180 | $ | 99,114 | ||||||
| Local | 16,472 | 20,083 | 24,847 | |||||||||
| Total revenues | $ | 106,524 | — | $ | 114,263 | $ | 123,961 | |||||
Europe revenues decreased $951,000increased $4.6 million, or 9%23.5%, in 20162023 as compared to 2015.2022. This decreaseincrease was primarily due to the decreasea $4.1 million increase in Travel revenues, and the decreasea $175,000 increase in Local revenues offset partially byand a $207,000$343,000 positive impact from foreign currency movements relative to the U.S. dollar. The decreaseincrease in Travel revenues of $718,000 was primarily due to the decreased number of e-mails sent. The decrease in Local revenues of $441,000 was primarily due to the decreased number of Local Deals vouchers sold.
Jack’s Flight Club
Jack’s Flight Club's premium members pay for quarterly, semi-annual or annual subscriptions to emails or app notifications of flight deals. Jack’s Flight Club’s revenues increased number of Local Deals vouchers sold.
New Initiatives
New Initiatives’ revenues increased by $179,000 in Local revenues of $2.0 million was primarily2023 as compared to 2022, due to a $46,000 increase in royalties from licensees operating in the decreased numberterritories of Local Deals vouchers sold. The decrease in Travel revenueJapan, South Korea, Australia, New Zealand and Singapore, and $133,000 primarily attributable to activities of $371,000MTE, which was primarily dueacquired on December 30, 2022, including a license fee, founding membership subscription fees to the decreased number of Getaway vouchers sold, offset partially by the increased travel publications revenues.
For 2017, 20162023 and 2015,2022, none of our customers accounted for 10% or more of our 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 cardsoftware license expenses, merchant processing fees, certain estimated refunds to members andfor member purchases of vouchers, customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with network operations and customer service staff. employees. Cost of revenues was $12.9 million, $13.9$10.9 million and $18.1$10.0 million for the years ended December 31, 2017, 20162023 and 2015,2022, respectively.
Cost of revenue decreased $946,000 in 2017revenues increased $931,000 for the year ended December 31, 2023 compared to 2016. This decrease wasthe year ended December 31, 2022 primarily due to a $837,000 decrease$532,000 increase in payments made toexpenses from third-party partners of the Travelzoo Network.
Network and a $320,000 increase in salary related expenses. Cost of revenue decreased $4.3 millionrevenues as a percent of revenues declined from 14.2% in 2016 compared2022 to 2015. This decrease was primarily due to a $2.9 million decrease12.9% in payments made to third-party partners of the Travelzoo Network, a $771,000 decrease in Local Deals and Getaway costs and a $585,000 decrease in employee compensation and benefits.2023.
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 staff,employees, expenses related to our participation in industry conferences, and public relations expenses.expenses and facilities costs. Sales and marketing expenses were $57.3 million, $58.4$37.8 million and $65.6$33.1 million for 2017, 2016the years ended December 31, 2023 and 2015,2022, respectively. Advertising expenses consist primarily of online advertising, which we refer to as user acquisition costs and member acquisition costs. For the years ended December 31, 2023 and 2022, advertising expenses accounted for 15%, 18%26% and 21%, respectively, of total sales and marketing expenses and consisted primarily of online advertising, which we refer to as traffic acquisition cost and member acquisition costs.expenses. The goal of our advertising wasis to acquire new members, forincrease our e-mail products, increase theaudience through mobile and social media channels, drive traffic to our websites and increase brand awareness.
Sales and marketing expenses decreased $1.1increased $4.7 million, or 14.2%, in 20172023 as compared to 2016. The decrease was2022, primarily due to a $1.2$1.8 million decreaseincrease in member acquisition costs, and a $0.4$1.8 million decreaseincrease in salary and employee related expenses, offset partially byand a $0.3$1.2 million increase in facility costs and $0.3 million increase in marketing costs.
Product Development
Product development expenses consist primarily of compensation forsalary and related expenses associated with software development staff,employees, fees for professional services, software maintenance, and amortization and facilities costs. Product development expenses were $9.2 million, $9.1 million and $12.2$2.1 million for 2017, 2016each of the years ended December 31, 2023 and 2015,2022, respectively.
Product development expenses increased $128,000modestly by $49,000, or 2.4%, in 20172023 as compared to 2016. The increase was 2022, primarily due to an increase in professional servicesincreased salary and related in part to our continuous enhancement to our website.
expenses. Product development expenses decreased $3.1 millionas a percent of revenues declined from 2.9% in 2016 compared2022 to 2015. The decrease was primarily due to a $1.5 million decrease2.4% in salary and employee related expenses, a $1.0 million decrease in professional service expenses and a $0.3 million decrease in contractor expenses.
2023.
General and Administrative
General and administrative expenses consist primarily of compensation forsalary and related expenses associated with administrative and executive fees foremployees, professional services, rent, bad debt expense,service expenses, legal expenses, amortization of intangible assets, and general office expense, facilities costs and bad debt expense. General and administrative expenses were $22.6 million, $22.7$18.1 million and $24.2$17.9 million for 2017, 2016the years ended 2023 and 2015,2022, respectively.
General and administrative expenses decreased $139,000increased modestly by $181,000, or 1.1%, in 20172023 as compared to 2016. The decrease was 2022, primarily due to a $548,000$942,000 increase in travel-related expenses, largely offset by a $808,000 decrease in professional services expenses related to various outside services, offset partially by a $435,000 increase in salary and employee related expenses.
Other Income, (loss)net
Other income, (loss)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 (loss) was $173,000, $(187,000)$1.5 million and $(1.2)$2.4 million for 2017, 2016the years ended December 31, 2023 and 2015,2022, respectively.
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Other income (loss) increased $360,000 from 2016decreased $860,000, or 35.8%, in 2023 as compared to 20172022, primarily due to foreign exchange transaction gainsa $1.5 million reduction in 2017. OtherGerman federal government funding for COVID pandemic relief, offset partially by $604,000 interest income (loss) decreased $1.1 millionon note receivable from 2015 to 2016 primarily due to foreign exchange transaction losses in 2015.stockholder.
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, adjusted to take into account expenses that are treated as having no recognizable tax benefit. Income tax expense (benefit) was $3.1 million, $4.0$5.1 million and $(5.9)$3.3 million, respectively, for 2017, 2016the years ended December 31, 2023 and 2015, respectively.2022. Our effective tax rate was 66%, 40%30% and (231)%33% for 2017, 20162023 and 2015,2022, respectively.
Our effective tax rate increaseddecreased for the year ended December 31,20172023 as compared to the year ended December 31, 2016,2022, primarily due to unfavorable changea decrease in our geographic mix of our worldwide taxable income including foreign net operating losses from Asia Pacific that are not benefited. In addition, the effective tax rate decreased by $907,000 due primarily to the recognition of certain previously unrecognized tax benefits related to uncertain tax positions as a result of the settlement of certain tax examinations offset by the provisional estimated net tax expense of $508,000 resulting from our initial analysis of the impact of the U.S. tax reform passed in December 2017. Our effective tax rate increased for the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to the recognition of an $8.4 million tax benefit related to the unexchanged promotional shares after a lapse of certain statute of limitations in 2015.non-deductible stock compensation. We expect that our effective tax rate to fluctuate in future periods may fluctuate depending on the geographic mix of our worldwide taxable income, total amount of expenses representing payments to former stockholders, income or losses mainly incurred by our operations, in Asia Pacific, Canada and Europe, 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 7–Income Taxesto the accompanying consolidated financial statements for more information on our effective tax rate.
included in Part II, Item 8 of this report which is incorporated herein by reference.
Segment Information
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands) | |||||||||||
| Revenues | $ | 7,519 | $ | 9,698 | $ | 10,649 | |||||
| (Loss) from operations | $ | (5,967 | ) | $ | (3,890 | ) | $ | (2,469 | ) | ||
| (Loss) from operations as a % of revenues | (79 | )% | (40 | )% | (23 | )% | |||||
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Revenues | $ | 56,080 | $ | 47,642 | |||||||
| Income from operations | $ | 15,254 | $ | 10,348 | |||||||
| Income from operations as a % of revenues | 27 | % | 22 | % | |||||||
North America revenues decreased $2.2increased $8.4 million, or 17.7%, in 2023 as compared to 2022 (see “Revenues” above). North America cost of sales and operating expenses increased by $3.5 million in 20172023 as compared to 2016 (see “Revenues” above). Asia Pacific expenses decreased $102,000 from 2016 to 2017. This decrease was2022, primarily due to a $470,000 decrease in member acquisition costs, offset partially by a $188,000 increase of salary expense and a $130,000 increase in rent expense.
Travelzoo Europe
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Revenues | $ | 24,021 | $ | 19,455 | |||||||
| Income (loss) from operations | $ | 1,317 | $ | (1,803) | |||||||
| Income (loss) from operations as a % of revenues | 5 | % | (9) | % | |||||||
Europe revenues increased $4.6 million, or 23.5%, in 2023 as compared to 2022. Europe cost of sales and operating expenses increased $1.4 million in 2023 as compared to 2022, primarily due primarily to a decrease$403,000 increase in headcount.travel-related expenses, $242,000 increase in professional service expenses, $233,000 increase in member acquisition costs and $175,000 increase in bad debt expense.
Foreign currency movements relative to the U.S. dollar positively impacted our local currency loss from our operations in Asia Pacific by approximately $35,000 for fiscal years 2017. Foreign currency movementsmovements relative to the U.S. dollar negatively impacted our local currency loss from our operations in Asia Pacific by approximately $191,000 and $16,000 for fiscal years 2016 and 2015, respectively.
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands) | |||||||||||
| Revenues | $ | 33,681 | $ | 36,907 | $ | 39,736 | |||||
| Income from operations | $ | 2,290 | $ | 5,604 | $ | 2,472 | |||||
| Income from operations as a % of revenues | 7 | % | 15 | % | 6 | % | |||||
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Revenues | 4,172 | $ | 3,477 | ||||||||
| Loss from operations | $ | (23) | $ | — | |||||||
| Loss from operations as a % of revenues | (1) | % | — | % | |||||||
38
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| (In thousands) | |||||||||||
| Revenues | $ | 65,324 | $ | 67,658 | $ | 73,576 | |||||
| Income from operations | $ | 8,222 | $ | 8,472 | $ | 3,817 | |||||
| Income from operations as a % of revenues | 13 | % | 13 | % | 5 | % | |||||
New Initiatives
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Revenues | $ | 204 | $ | 25 | |||||||
| Income from operations | $ | (976) | $ | (988) | |||||||
New Initiatives revenues increased $179,000 in Local Deals and Getaway products.
Liquidity and Capital Resources
As of December 31, 2017,2023, we had $22.6$15.7 million inof cash and cash equivalents, of which $16.4 $10.7 million was held outside the U.S., and we had $675,000 in certain ofrestricted cash held in the U.S. If our foreign operations. If these assets arecash and cash equivalents held outside the U.S. were distributed to the U.S., we may be subject to additional U.S. taxes in certain circumstances.
Cash, and cash equivalents and restricted cash decreased from $26.8by $3.0 million to $16.4 million as of December 31, 20162023 from $19.4 million as of December 31, 2022, primarily as a resultdue to $16.8 million of cash used to repurchase common stock, offset partially by $10.7 million of cash provided by operating activities and $3.0 million payment of promissory notes.
As of December 31, 2023, we had merchant payables of $20.6 millionrelated to unredeemed vouchers. In the Company’s financial statements presented in this 10-K 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 $3.4 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers expire between January 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 repurchasesup to a year after expiration. Based on current projections of our common stock. Weredemption activity, we expect that cash and cash equivalents on hand as of December 31, 2023 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:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 10,675 | $ | (23,121) | |||||||
| Net cash used in investing activities | (39) | (1,315) | |||||||||
| Net cash provided by (used in) financing activities | (14,150) | 1,282 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 525 | (2,457) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (2,989) | $ | (25,611) | |||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| ( In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 2,076 | $ | 8,722 | $ | 4,192 | |||||
| Net cash provided by (used in) investing activities | 2,152 | (909 | ) | (1,218 | ) | ||||||
| Net cash used in financing activities | (9,712 | ) | (15,262 | ) | (20,012 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 1,199 | (841 | ) | (3,251 | ) | ||||||
| Net decrease in cash and cash equivalents | $ | (4,285 | ) | $ | (8,290 | ) | $ | (20,289 | ) | ||
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 activities2023 was $2.1$10.7 million, for 2017, which consistedconsisting of a net income of $3.5$12.5 million and $2.4 million adjustments for non-cash items, of $265,000, offset partially by $4.2 million used in changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of $1.9 million for depreciation and amortization and $1.6 million for stock-based compensation, offset partially by a $1.7$1.0 million reversal of reserve for accounts receivable and refunds. Cash used in operating assets and liabilities was primarily due to a $12.1 million decrease in merchant payables, offset partially by a $3.8 million decrease in prepaid expenses and other, $2.4 million increase in other liabilities and $1.2 million decrease in prepaid income taxes.
Net cash used in operating activities for 2022 was $23.1 million, which consisted of $30.4 million decrease in cash from changes in operating assets and liabilities. Adjustments forliabilities, offset partially by net income of $6.6 million and $684,000 increase in non-cash items primarily consisted of the $2.9 million discontinued operations gain on the sale of the Fly.com domain name, offset by $2.1 million of depreciation and amortization expense on property and equipment and $1.0 million of stock-based compensation expense.
39
items. The decrease in cash from changes in operating assets and liabilities was primarily consisted of $2.5due to $35.2 million decrease in other non-current liabilities primarily associated with the resolution of 2009 IRS audit related to the sale of our Asia Pacific business segment andmerchant payables, offset partially by $1.6 million decrease in accounts payable, offset partially by $3.1prepaid expenses and other, $1.5 million decrease in prepaid income tax and $1.3 million decrease in accounts receivable.
net of payment made, in 2023 was $1,000. Cash paid for income tax, net of refunds received, in 2017, 2016 and 20152022 was $6.2 million, $3.3 million and $801,000, respectively.$1.1 million.
Net cash used in financing activities for 2017, 20162023 was $14.2 million, which primarily consisted of $16.8 million for the repurchase of common stock and 2015 was $9.7$3.0 million $15.3 million and $20.0 million, respectively.payment of promissory notes. Net cash used inprovided by financing activities for 2022 was $1.3 million, which primarily consisted of $1.9 million proceeds from the year ended December 31, 2017 was primarily due to $9.7exercise of stock options and $1.0 million cash usedproceeds from the issuance of common stock in repurchasesa private placement, offset partially by $1.6 million for the repurchase of our common stock. Net cash used in financing activities for the year ended December 31, 2016 was primarily due to $5.7 million payment of related party loan and $9.7 million cash used in repurchases of our common stock. Net cash used in financing activities for the year ended December 31, 2015 was primarily due to cash used in acquiring the Travelzoo Asia Pacific business and repurchases of our common stock.
Although the Company haswe have settled the states unclaimed property claims with all states, the Companywe may still receive inquiries from certain potential NetsurferNetsurfers promotional stockholders that had not provided their state of residence to the Companyus by April 25, 2004. Therefore, the Company iswe are continuing itsour voluntary program under which it makeswe make cash payments to individuals related to the promotional shares forheld by individuals whose residence was unknown by the Companyus and
who establish that they satisfied the conditions to receive shares of Travelzoo.com Corporation,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 the Company.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 stockholdersshareholders of Travelzoo.com Corporation,Netsurfers, expansion of our operations, and the amount of resources we devote to promoting awareness of our the Travelzoo brands. brand. Since the inception of the voluntary program under which we make cash payments to people who establish that they wereare qualifying former stockholdersshareholders of Travelzoo.com Corporation, and who failed to submit requests to convert their shares into shares of Travelzoo within the required time period,Netsurfers, 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, product development 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. 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 and 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, thesuch 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.outflows.
The information set forth underunder “Note 4 — 6—Commitments and Contingencies”Contingencies” and “Note 14—Leases” to the accompanying consolidated financial statements included in Part II, Item 8 of this report is incorporated herein by reference.reference. 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.
40
The following summarizes our principal contractual commitments as of December 31, 20172023 (in thousands):
| Operating Lease Commitments Long-term | Operating Lease Commitments Short-term | Total Operating Lease Commitments | Purchase Obligations | Total Commitments | |||||||||||||||||||||||||
| 2024 | $ | 2,701 | $ | 381 | $ | 3,082 | $ | 492 | $ | 3,574 | |||||||||||||||||||
| 2025 | 1,900 | — | 1,900 | 43 | 1,943 | ||||||||||||||||||||||||
| 2026 | 1,396 | — | 1,396 | — | 1,396 | ||||||||||||||||||||||||
| 2027 | 1,350 | — | 1,350 | — | 1,350 | ||||||||||||||||||||||||
| 2028 | 1,350 | — | 1,350 | — | 1,350 | ||||||||||||||||||||||||
| Thereafter | 1,575 | — | 1,575 | — | 1,575 | ||||||||||||||||||||||||
| Total | $ | 10,272 | $ | 381 | $ | 10,653 | $ | 535 | $ | 11,188 | |||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Operating leases | $ | 5,320 | $ | 4,505 | $ | 3,833 | $ | 3,205 | $ | 2,370 | $ | 3,258 | $ | 22,491 | |||||||||||||
| Purchase obligations | 1,446 | 17 | 11 | — | — | — | 1,474 | ||||||||||||||||||||
| Total commitments | $ | 6,766 | $ | 4,522 | $ | 3,844 | $ | 3,205 | $ | 2,370 | $ | 3,258 | $ | 23,965 | |||||||||||||
We also have contingencies related to net unrecognized tax benefits, including interest, of approximately$1.2 $24.7 million as of December 31, 2017.2023. See Note 57—Income Taxes to the accompanying consolidated financial statements included in Part II, Item 8 of this report which is incorporated herein by referencefor further information.
Critical Accounting Policies and Estimates
We believeprepare our consolidated financial statements and accompanying notes in accordance with GAAP. Preparation of the consolidated financial statements and accompanying notes requires management to make estimates and assumptions that there are a number of accounting policies that are critical to understanding our historical and future performance, as these policies affect the reportedamounts of assets and liabilities at the date of the consolidated financial statements and amounts of revenue and expenses reported during the more significant areas involving management’speriod. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and estimates. Theseliabilities. Actual results may differ significantly from those estimates under different assumptions and conditions and may be material. Refer to Note 1—Basis of Presentation and Summary of Significant Accounting Policies of the notes to consolidated financial statements in Part II Item 8 of this Annual Report on Form 10-K for an overview of our significant accounting policies relate to revenue recognition, reserve for member refunds, allowance for doubtful accounts, income taxes and loss contingencies. These policies, and our procedures related to these policies,.
There are described in detail below.
•It requires us to make an arrangement.
•Changes in accrued expensesthe estimate or different estimates that we could have selected may have had a material impact on the consolidated balance sheets. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserves for member refunds. Specifically, if the financial condition of our advertisers, the businesses that are providing the vouchered services, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for member refunds may be required.
A discussion of information about the amount we previously accrued.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are subjectrecognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, along with net operating loss carryforwards and credit carryforwards, if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, valuation allowances are established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income taxes in the U.S. and numerous foreign jurisdictions. years in which temporary differences are expected to be recovered or settled.
Significant judgment is required in evaluating ourthe Company's uncertain tax positions and determining ourthe Company's provision for income taxes. Although we believeWe record liabilities to address uncertain tax positions we have taken in previously filed tax returns or that we expect to take in a future tax return. Although the Company believes it has adequately reserved for ourits uncertain tax positions, no assurance can be given that the final tax outcomeoutcomes of these matters will not be different. We adjust theseThe Company adjusts its reserves in light of changing facts and circumstances, such as the progress or closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcomeoutcomes of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest. In addition to local country tax laws and regulations, our income tax rate depends on the extent that our foreign earnings are taxed by the U.S. through new provisions under the Tax Act such as the new GILTI tax and BEAT or as a result of our indefinite reinvestment assertion. Indefinite reinvestment is determined by management’s judgment about and intentions concerning our future operations.
41
Recent Accounting Pronouncements
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
TRAVELZOO
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
| Report of KPMG LLP - Independent Registered Public Accounting Firm (PCAOB ID: 185) | |||||
| Consolidated Balance Sheets | |||||
| Consolidated Statements of Operations | |||||
| Consolidated Statements of Comprehensive Income | |||||
| Consolidated Statements of Stockholders’ Equity (Deficit) | |||||
| Consolidated Statements of Cash Flows | |||||
| Notes to Consolidated Financial Statements | |||||
43
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders of Travelzoo
Travelzoo:
We have audited the accompanying consolidated balance sheetssheet of Travelzoo and its subsidiaries (the Company) as of December 31, 2017 and December 31, 2016, and2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity (deficit), and cash flows for each of the two years in the periodyear then ended December 31, 2017, including2023, and the related notes (collectively, referred to as the “consolidatedconsolidated financial statements”)statements). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016,2023, and the results of its operations and its cash flows for each of the two years in the periodyear then ended December 31, 20172023, in conformity with accounting principlesU.S. generally accepted inaccounting principles.
We also have audited the United States of America. Also in our opinion,adjustments to the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
assurance on the 2022 consolidated financial statements taken as a whole.
Basis for OpinionsOpinion
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effectivefraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting was maintained in all material respects.
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the consolidated financial statementsaudit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinions.opinion.
Critical Audit Matter
Sufficiency of audit evidence over revenue related to advertising fees
As discussed in Notes 1(b) and dispositions12 to the consolidated financial statements, the Company enters into contracts with advertisers to promote their respective advertisements through the Travelzoo website and emails. Advertising revenue is recognized by the Company upon the delivery of the assetsemails to its members or each time a user clicks on the respective advertisements. For the year ended December 31, 2023, the Company recorded $84.5 million in revenues, which included advertising fee revenues from email newsletters and cost-per-click advertising.
44
We identified the evaluation of the company; (ii) provide reasonable assurance that transactions are recordedsufficiency of audit evidence over revenue related to advertising fees for email newsletters and cost-per-click advertising as necessarya critical audit matter. The Company’s reliance on its information technology (IT) system to permit preparationcapture the number of financial statements in accordance with generally accepted accounting principles,emails and that receipts and expendituresclicks for revenue recognition required a heightened level of auditor judgment due to the extensive automation of the companyprocess. Our audit procedures required the involvement of IT professionals with specialized skills and knowledge and auditor judgment was required to determine the nature and extent of procedures and to evaluate audit evidence obtained.
The following are being made onlythe primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed. We involved IT professionals with specialized skills and knowledge, who assisted in accordanceevaluating the design and testing the operating effectiveness of certain internal controls over the Company’s revenue process, including general IT controls and IT application controls over the tracking of emails and clicks. For a sample of transactions, we assessed the recorded revenue by comparing the amounts recognized for consistency with authorizationsunderlying documentation, including contract terms, number of managementemails or clicks, and directorssubsequent cash, if applicable. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the company;nature and (iii) provide reasonable assurance regarding prevention or timely detectionextent of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.such evidence.
/s/ PricewaterhouseCoopersKPMG LLP
We have served as the Company’s auditor since 2016.2023.
New York, New York
March 22, 2024
45
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholdersof Travelzoo
Opinion on the Financial Statements
We have audited, before the effects of the adjustments to retrospectively apply the changes in the Company's disclosures about segments and related information in Note 12, the accompanying consolidated balance sheet of Travelzoo and subsidiaries (the Company) as of December 31, 2022, the related consolidated statements of operations, comprehensive income, stockholders’stockholders' equity (deficit) and cash flows of Travelzoo and subsidiaries (Travelzoo) for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). The 2022 financial statements before the effects of the adjustments described in Note 12 are not presented herein. In our opinion, before the effects of the adjustments to retrospectively apply the changes in the Company's disclosures about segments and related information in Note 12, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2015. 2022, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to retrospectively apply the changes in the Company's disclosures about segments and related information in Note 12 and, accordingly we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.
Emphasis of Matter
As discussed in Note 17 to the financial statements, the 2022 financial statements have been restated to correct a misstatement.
Basis for Opinion
These consolidated financial statements are the responsibility of Travelzoo’sthe Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit provideprovides a reasonable basis for our opinion.
/s/ KPMGRSM US LLP
We served as the Company's auditor from 2019 to 2023.
San Jose, California
March 11, 2016,31, 2023, except for Note 11,17 as to which the date is March 15, 2018August 14, 2023
46
TRAVELZOO
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
| December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||
| December 31, 2023 | December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 22,553 | $ | 26,838 | ||||||||||||||||||||||
| Accounts receivable, less allowance for doubtful accounts of $315 and $295 as of December 31, 2017 and 2016, respectively | 11,769 | 14,415 | ||||||||||||||||||||||||
| Income tax receivable | 517 | 542 | ||||||||||||||||||||||||
| Deferred tax assets | — | 793 | ||||||||||||||||||||||||
| Deposits | 259 | 105 | ||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Accounts receivable, net of allowance of $1,484 and $1,468 as of December 31, 2023 and 2022, respectively | ||||||||||||||||||||||||||
| Prepaid income taxes | ||||||||||||||||||||||||||
| Prepaid expenses and other | 2,141 | 1,773 | ||||||||||||||||||||||||
| Assets from discontinued operations | ||||||||||||||||||||||||||
| Total current assets | 37,239 | 44,466 | ||||||||||||||||||||||||
| Deposits and other | 548 | 702 | ||||||||||||||||||||||||
| Deferred tax assets | 1,516 | 1,052 | ||||||||||||||||||||||||
| Restricted cash | 1,448 | 1,152 | ||||||||||||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||||||||||||||
| Property and equipment, net | 4,921 | 6,158 | ||||||||||||||||||||||||
| Intangible assets, net | ||||||||||||||||||||||||||
| Goodwill | ||||||||||||||||||||||||||
| Total assets | $ | 45,672 | $ | 53,530 | ||||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||
| Accounts payable | $ | 19,105 | $ | 19,714 | ||||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||||||||
| Merchant payables | ||||||||||||||||||||||||||
| Accrued expenses and other | 8,702 | 8,699 | ||||||||||||||||||||||||
| Deferred revenue | 825 | 719 | ||||||||||||||||||||||||
| Operating lease liabilities | ||||||||||||||||||||||||||
| Income tax payable | 961 | 691 | ||||||||||||||||||||||||
| Liabilities from discontinued operations | ||||||||||||||||||||||||||
| Total current liabilities | 29,593 | 29,823 | ||||||||||||||||||||||||
| Long-term tax liabilities | 373 | 2,879 | ||||||||||||||||||||||||
| Long-term deferred rent and other | 2,628 | 2,764 | ||||||||||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||||||||||||||
| Other long-term liabilities | ||||||||||||||||||||||||||
| Total liabilities | ||||||||||||||||||||||||||
| Commitments and contingencies (Note 6) | Commitments and contingencies (Note 6) | |||||||||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||
| Preferred stock, $0.01 par value per share (5,000 shares authorized; none issued) | — | — | ||||||||||||||||||||||||
| Common stock, $0.01 par value (40,000 shares authorized; 12,462 shares issued and outstanding as of December 31, 2017 and 13,462 shares issued and outstanding as of December 31, 2016) | 125 | 135 | ||||||||||||||||||||||||
| Preferred stock, $0.01 par value per share (5,000 shares authorized; none issued) | ||||||||||||||||||||||||||
| Preferred stock, $0.01 par value per share (5,000 shares authorized; none issued) | ||||||||||||||||||||||||||
| Common stock, $0.01 par value (20,000 shares authorized as of December 31, 2023 and 2022, respectively; 13,575 shares issued and outstanding as of December 31, 2023, 16,505 shares issued and 15,704 shares outstanding as of December 31, 2022 ) | ||||||||||||||||||||||||||
| Treasury stock, at cost (801 shares as of December 31, 2022) | ||||||||||||||||||||||||||
| Additional paid-in capital | — | — | ||||||||||||||||||||||||
| Tax indemnification | ||||||||||||||||||||||||||
| Note receivable from shareholder | ||||||||||||||||||||||||||
| Retained earnings | 16,550 | 21,716 | ||||||||||||||||||||||||
| Accumulated other comprehensive loss | (3,597 | ) | (3,787 | ) | ||||||||||||||||||||||
| Total Travelzoo stockholders’ equity | ||||||||||||||||||||||||||
| Non-controlling interest | ||||||||||||||||||||||||||
| Total stockholders’ equity | 13,078 | 18,064 | ||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 45,672 | $ | 53,530 | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
47
TRAVELZOO
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenues | $ | 84,477 | $ | 70,599 | |||||||
| Cost of revenues | 10,934 | 10,003 | |||||||||
| Gross profit | 73,543 | 60,596 | |||||||||
| Operating expenses: | |||||||||||
| Sales and marketing | 37,774 | 33,072 | |||||||||
| Product development | 2,113 | 2,064 | |||||||||
| General and administrative | 18,084 | 17,903 | |||||||||
| Total operating expenses | 57,971 | 53,039 | |||||||||
| Operating income | 15,572 | 7,557 | |||||||||
| Other income, net | 1,541 | 2,401 | |||||||||
| Income from continuing operations before income taxes | 17,113 | 9,958 | |||||||||
| Income tax expense | 5,105 | 3,270 | |||||||||
| Income from continuing operations | 12,008 | 6,688 | |||||||||
| Income (loss) from discontinued operations, net of tax | 460 | (59) | |||||||||
| Net income | 12,468 | 6,629 | |||||||||
| Net income (loss) attributable to non-controlling interest | 102 | (5) | |||||||||
| Net income attributable to Travelzoo | $ | 12,366 | $ | 6,634 | |||||||
| Net income attributable to Travelzoo—continuing operations | $ | 11,906 | $ | 6,693 | |||||||
| Net income (loss) attributable to Travelzoo—discontinued operations | $ | 460 | $ | (59) | |||||||
| Income per share—basic | |||||||||||
| Continuing operations | $ | 0.80 | $ | 0.54 | |||||||
| Discontinued operations | $ | 0.03 | $ | — | |||||||
| Net income per share—basic | $ | 0.83 | $ | 0.54 | |||||||
| Income per share—diluted | |||||||||||
| Continuing operations | $ | 0.80 | $ | 0.53 | |||||||
| Discontinued operations | $ | 0.03 | $ | — | |||||||
| Net income per share —diluted | $ | 0.83 | $ | 0.53 | |||||||
| Shares used in per share calculation from continuing operations—basic | 14,897 | 12,372 | |||||||||
| Shares used in per share calculation from discontinued operations—basic | 14,897 | 12,372 | |||||||||
| Shares used in per share calculation from continuing operations—diluted | 14,964 | 12,561 | |||||||||
| Shares used in per share calculation from discontinued operations—diluted | 14,964 | 12,372 | |||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Revenues | $ | 106,524 | $ | 114,263 | $ | 123,961 | |||||
| Cost of revenues | 12,909 | 13,855 | 18,148 | ||||||||
| Gross profit | 93,615 | 100,408 | 105,813 | ||||||||
| Operating expenses: | |||||||||||
| Sales and marketing | 57,288 | 58,429 | 65,609 | ||||||||
| Product development | 9,224 | 9,096 | 12,214 | ||||||||
| General and administrative | 22,558 | 22,697 | 24,170 | ||||||||
| Total operating expenses | 89,070 | 90,222 | 101,993 | ||||||||
| Income from continuing operations | 4,545 | 10,186 | 3,820 | ||||||||
| Other income (loss), net | 173 | (187 | ) | (1,242 | ) | ||||||
| Income from continuing operations before income taxes | 4,718 | 9,999 | 2,578 | ||||||||
| Income tax expense (benefit) | 3,126 | 3,992 | (5,945 | ) | |||||||
| Income from continuing operations | $ | 1,592 | $ | 6,007 | $ | 8,523 | |||||
| Income from discontinued operations, net of income taxes | 1,938 | 624 | 2,341 | ||||||||
| Net income | $ | 3,530 | $ | 6,631 | $ | 10,864 | |||||
| Income per share—basic: | |||||||||||
| Continuing operations | $ | 0.12 | $ | 0.43 | $ | 0.58 | |||||
| Discontinued operations | 0.15 | 0.04 | 0.16 | ||||||||
| Net income per share—basic | $ | 0.27 | $ | 0.47 | $ | 0.74 | |||||
| Income per share—diluted: | |||||||||||
| Continuing operations | $ | 0.12 | $ | 0.43 | $ | 0.58 | |||||
| Discontinued operations | 0.15 | 0.04 | 0.16 | ||||||||
| Net income per share—diluted | $ | 0.27 | $ | 0.47 | $ | 0.74 | |||||
| Shares used in computing basic net income per share | 12,882 | 13,997 | 14,722 | ||||||||
| Shares used in computing diluted net income per share | 12,894 | 13,997 | 14,722 | ||||||||
See accompanying notes to consolidated financial statements.
48
TRAVELZOO
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income | $ | 12,468 | $ | 6,629 | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustment | 298 | (1,112) | |||||||||
| Total comprehensive income | $ | 12,766 | $ | 5,517 | |||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net income | $ | 3,530 | $ | 6,631 | $ | 10,864 | |||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustment | 190 | 121 | (1,306 | ) | |||||||
| Total comprehensive income | $ | 3,720 | $ | 6,752 | $ | 9,558 | |||||
See accompanying notes to consolidated financial statements.
49
TRAVELZOO
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
| Common Stock | Treasury Stock | Additional Paid-In Capital | Tax Indemnification | Note Receivable from Shareholder | Retained Earnings | Accumulated Other Comprehensive Loss | Non-Controlling interest | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | 12,551 | $ | 126 | $ | (5,488) | $ | 4,415 | $ | — | $ | — | $ | 508 | $ | (3,793) | $ | — | $ | (4,232) | ||||||||||||||||||||||||||||||||||||||||
| Reclassification of non-controlling interest | — | — | — | — | — | — | — | — | 4,600 | 4,600 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | 1,805 | — | — | — | — | — | 1,805 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | (1,642) | — | — | — | — | — | — | (1,642) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and taxes paid for net share settlement | 544 | 5 | — | 1,867 | — | — | — | — | — | 1,872 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from short swing settlement | — | — | — | 46 | — | — | — | — | — | 46 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash, notes and other consideration, net | 3,410 | 34 | — | 15,141 | (9,537) | (4,753) | — | — | — | 885 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | (1,112) | — | (1,112) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income—Travelzoo | — | — | — | — | — | — | 6,634 | — | (5) | 6,629 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2022 | 16,505 | 165 | (7,130) | 23,274 | (9,537) | (4,753) | 7,142 | (4,905) | 4,595 | 8,851 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | 1,568 | — | — | — | — | — | 1,568 | |||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock (1) | — | — | (16,781) | (152) | — | — | — | — | — | (16,933) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | (3,095) | (30) | 23,911 | (23,881) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and taxes paid for net share settlement | 165 | 1 | — | (370) | — | — | — | — | — | (369) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from Note receivable from shareholder | — | — | — | — | — | 3,000 | — | — | — | 3,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | 298 | — | 298 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income—Travelzoo | — | — | — | — | — | — | 12,366 | — | 102 | 12,468 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2023 | 13,575 | $ | 136 | $ | — | $ | 439 | $ | (9,537) | $ | (1,753) | $ | 19,508 | $ | (4,607) | $ | 4,697 | $ | 8,883 | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| Balances, January 1, 2015 | 14,730 | $ | 163 | $ | (21,517 | ) | $ | 30,586 | $ | 29,197 | $ | (2,602 | ) | $ | 35,827 | |||||||||||
| Stock-based compensation expense | — | — | — | 401 | — | — | 401 | |||||||||||||||||||
| Retirement of treasury stock | — | (13 | ) | 23,241 | (23,228 | ) | — | — | — | |||||||||||||||||
| Repurchase and retirement of common stock, net | (212 | ) | — | (1,724 | ) | — | — | — | (1,724 | ) | ||||||||||||||||
| Proceeds from sale of shares fractionalized from reverse/forward stock split, including transaction costs | — | — | — | — | (102 | ) | — | (102 | ) | |||||||||||||||||
| Acquisition of Asia Pacific Business | — | — | — | — | (22,573 | ) | — | (22,573 | ) | |||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (1,306 | ) | (1,306 | ) | |||||||||||||||||
| Net income | — | — | — | — | 10,864 | — | 10,864 | |||||||||||||||||||
| Balances, December 31, 2015 | 14,518 | 150 | — | 7,759 | 17,386 | (3,908 | ) | 21,387 | ||||||||||||||||||
| Stock-based compensation expense | — | — | — | 933 | — | — | 933 | |||||||||||||||||||
| Repurchase and retirement of common stock, net | (1,056 | ) | (15 | ) | — | (7,189 | ) | (2,301 | ) | — | (9,505 | ) | ||||||||||||||
| Tax benefit shortfall from forfeiture/cancellation of stock options | — | — | — | (1,503 | ) | — | — | (1,503 | ) | |||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 121 | 121 | |||||||||||||||||||
| Net income | — | — | — | — | 6,631 | — | 6,631 | |||||||||||||||||||
| Balances, December 31, 2016 | 13,462 | 135 | — | — | 21,716 | (3,787 | ) | 18,064 | ||||||||||||||||||
| Stock-based compensation expense | — | — | — | 1,006 | — | — | 1,006 | |||||||||||||||||||
| Repurchase and retirement of common stock, net | (1,000 | ) | (10 | ) | — | (1,006 | ) | (8,696 | ) | — | (9,712 | ) | ||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 190 | 190 | |||||||||||||||||||
| Net income | — | — | — | — | 3,530 | — | 3,530 | |||||||||||||||||||
| Balances, December 31, 2017 | 12,462 | $ | 125 | $ | — | $ | — | $ | 16,550 | $ | (3,597 | ) | $ | 13,078 | ||||||||||||
See accompanying notes to consolidated financial statements.
50
TRAVELZOO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 12,468 | $ | 6,629 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 1,893 | 2,189 | |||||||||
| Stock-based compensation | 1,568 | 1,805 | |||||||||
| Deferred income tax | 48 | 774 | |||||||||
| Impairment of intangible assets and goodwill | — | 200 | |||||||||
| Loss on sale of long-lived assets | 10 | 47 | |||||||||
| Gain on sale of equity investment in WeGo | — | (196) | |||||||||
| Net foreign currency effect | (62) | 232 | |||||||||
| Net recoveries of accounts receivable and refund reserves | (1,016) | (4,367) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 1,086 | 1,317 | |||||||||
| Prepaid income taxes | 1,189 | 1,452 | |||||||||
| Prepaid expenses and other | 3,835 | 1,627 | |||||||||
| Accounts payable | (523) | 902 | |||||||||
| Merchant payables | (12,095) | (35,228) | |||||||||
| Accrued expenses and other | (876) | (496) | |||||||||
| Income tax payable | 749 | (162) | |||||||||
| Other liabilities | 2,401 | 154 | |||||||||
| Net cash provided by (used in) operating activities | 10,675 | (23,121) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of intangible assets | — | (1,049) | |||||||||
| Proceeds from repayment of note receivable | 216 | — | |||||||||
| Proceeds from sale of equity investment in WeGo | — | 196 | |||||||||
| Purchases of property and equipment | (255) | (462) | |||||||||
| Net cash used in investing activities | (39) | (1,315) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repurchase of common stock | (16,781) | (1,642) | |||||||||
| Proceeds from payment of promissory note | 3,000 | — | |||||||||
| Proceeds from short swing settlement | — | 46 | |||||||||
| Proceeds from issuance of common stock | — | 1,006 | |||||||||
| Proceeds from exercise of stock options, net of taxes paid for net share settlement of equity awards | (369) | 1,872 | |||||||||
| Net cash provided by (used in) financing activities | (14,150) | 1,282 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 525 | (2,457) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (2,989) | (25,611) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 19,378 | 44,989 | |||||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 16,389 | $ | 19,378 | |||||||
51
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 3,530 | $ | 6,631 | $ | 10,864 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 2,075 | 2,530 | 2,788 | ||||||||
| Discontinued operations gain on sale of Fly.com domain name | (2,890 | ) | — | — | |||||||
| Stock-based compensation | 1,006 | 933 | 401 | ||||||||
| Deferred income tax | 309 | (199 | ) | (269 | ) | ||||||
| Net foreign currency effect | (354 | ) | (315 | ) | 480 | ||||||
| Other | 118 | 100 | (20 | ) | |||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 3,065 | 1,313 | (789 | ) | |||||||
| Income tax receivable | 28 | 816 | 2,371 | ||||||||
| Prepaid expenses and other | (487 | ) | 957 | 675 | |||||||
| Accounts payable | (1,588 | ) | (2,463 | ) | (1,139 | ) | |||||
| Reserve for unexchanged promotional shares | — | — | (1,393 | ) | |||||||
| Accrued expenses and other | (475 | ) | (1,747 | ) | (1,681 | ) | |||||
| Income tax payable | 261 | 287 | (161 | ) | |||||||
| Other non-current liabilities | (2,522 | ) | (121 | ) | (7,935 | ) | |||||
| Net cash provided by operating activities | 2,076 | 8,722 | 4,192 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | (738 | ) | (909 | ) | (1,282 | ) | |||||
| Proceeds from sale of Fly.com domain name | 2,890 | — | — | ||||||||
| Release of restricted cash | — | — | 64 | ||||||||
| Net cash provided by (used in) investing activities | 2,152 | (909 | ) | (1,218 | ) | ||||||
| Cash flows from financing activities: | |||||||||||
| Acquisition of the Asia Pacific business | — | 58 | (16,974 | ) | |||||||
| Payment of loan to related party | — | (5,658 | ) | (3,250 | ) | ||||||
| Proceeds from loan from related party | — | — | 2,224 | ||||||||
| Increase in bank overdraft | — | — | 44 | ||||||||
| Decrease in bank overdraft | — | — | (385 | ) | |||||||
| Repurchase of common stock | (9,712 | ) | (9,662 | ) | (1,569 | ) | |||||
| Reverse/forward stock split, including transaction costs | — | — | (102 | ) | |||||||
| Net cash used in financing activities | (9,712 | ) | (15,262 | ) | (20,012 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 1,199 | (841 | ) | (3,251 | ) | ||||||
| Net decrease in cash and cash equivalents | (4,285 | ) | (8,290 | ) | (20,289 | ) | |||||
| Cash and cash equivalents at beginning of year | 26,838 | 35,128 | 55,417 | ||||||||
| Cash and cash equivalents at end of year | $ | 22,553 | $ | 26,838 | $ | 35,128 | |||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for income taxes, net | $ | 6,201 | $ | 3,309 | $ | 801 | |||||
| Cash paid for interest | $ | — | $ | 88 | $ | 128 | |||||
| Note payable for the acquisition of the Asia Pacific business | $ | — | $ | — | $ | 5,658 | |||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid (refund) for income taxes, net | $ | (1) | $ | 1,147 | |||||||
| Right-of-use assets obtained in exchange for lease obligations—operating leases | $ | 602 | $ | 1,652 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 3,235 | $ | 3,224 | |||||||
| Non-cash investing and financing activities: | |||||||||||
| Accrued excise tax for share repurchases | $ | 152 | $ | — | |||||||
| Non-cash consideration for purchase of intangible asset | $ | — | $ | 1,150 | |||||||
| Common stock issued for Metaverse Travel Experience, Inc. assets | $ | — | $ | 63 | |||||||
| Common stock issued for note receivable from shareholder | $ | — | $ | 4,753 | |||||||
| Common stock issued for tax indemnification | $ | — | $ | 9,537 | |||||||
See accompanying notes to consolidated financial statements.
52
TRAVELZOO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation and Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo (including its subsidiaries and affiliates, the “Company” or “we”), the club for travel enthusiasts, is a global Internet media company. Travelzoo® provides our its 30 million members insider dealswith exclusive offers and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. With more than 25 offices worldwide, weWe have our finger on the pulse of outstanding travel, entertainment and lifestylelocal experiences. For over 15 years we have workedWe work in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.
Our most important products and services are the very best deals. Travelzoo's revenues are generated primarily from advertising fees.
Travelzoo membership has historically been free, however, beginning in 2024, new members in the United States, Canada, United Kingdom and Germany are charged an annual fee of $40 (or local equivalent), with the 2024 annual fee waived for existing members as of December 31, 2023. For any subscription revenue derived from paid memberships, we recognize revenue monthly pro rata over the subscription periods.
We receivealso 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 quarterly royalty payments based on a percentage of net revenue. The Company recognized $71,000 and $25,000 in royalties in 2023 and 2022, respectively. Under the face valuelicensing agreements, Travelzoo's existing members in the applicable territories continue to be owned by the Company.
In March 2022 we announced the development of, and in May 2023 we launched Travelzoo META to extend the range of experiences we offer consumers to 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. On December 30, 2022, we acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), to support Travelzoo META in sourcing prospective travel experiences. See Note 3–Acquisitions to the consolidated financial statements for further information regarding the acquisition of MTE.
Jack’s Flight Club
In January 2020, Travelzoo acquired a 60% interest in 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 December 31, 2023, Jack’s Flight Club had 2.4 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. See Note 3–Acquisitions to the consolidated financial statements for further information.
APAC Exit and Pivot to Licensing Model
In March 2020, Travelzoo exited its loss-making Asia Pacific business and pivoted to a licensing model. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020.
Travelzoo currently has license agreements 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 of $35,000 and $25,000 from the licensee for the years ended December 31, 2023 and 2022, respectively.
53
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 $36,000 and $0 from the licensee for the years ended December 31, 2023 and 2022, respectively.
Global Funding for Pandemic
In January 2022, July 2022 and May 2023, the Company’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the voucherCompany (“Travelzoo Germany”), received notification and funding of approximately $1.2 million, $494,000 and $205,000 from the local businesses.German Federal Government under its Bridging Aid III, Bridging Aid III+ and Bridging Aid IV programs, respectively. These programs were 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 is required to submit a final declaration in connection with the grants received by September 30, 2024. The Company believes it was eligible to participate in the programs and is entitled to the funding received and does not expect significant changes to the amounts already received to arise from the final submission. The Company recorded the$1.7 million and $205,000 as gains in Other income, net in 2022 and 2023, respectively.
The Company also received $164,000 in job retention-related funding from the Canadian government in relation to its Canada office location in 2022. Such funding was recorded as a reduction of salary and related expenses. The Company did not receive any such funding in 2023. The Company did not receive pandemic-related funding from its non-German European locations in either of 2023 or 2022.
Going Concern
In accordance with the requirements of Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements Going Concern (ASU 2014-15)”, and ASC 205, “Presentation of Financial Statements”, the Company is responsible to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations. In its evaluation for this report, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due within one year following the date of issuance of this Annual Report on Form 10-K.
The Company believes it has the ability to meet its obligations for at least one year from the date of issuance of this Form 10-K. Accordingly, the accompanying consolidated financial statements have been prepared assuming it will continue as a going concern and contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Ownership
Ralph Bartel, who founded Travelzoo, (the "Company") and who is a Director of the Company is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. ("Azzurro"). As of December 31, 2017,Azzurro. Azzurro is the Company'sCompany’s largest stockholder, holdingshareholder, and as of December 31, 2023, holds approximately 57.8%40.2% of the Company's outstanding shares. Holger Bartel, the Company's Global CEO, is Ralph Bartel's brother and separately holds 3.8% of the Company's outstanding shares as of December 31, 2023.
The consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”("GAAP") in the United States (“("U.S.”"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For our consolidated financial statements as of and for the period ended December 31, 2023, we evaluated subsequent events and transactions for potential recognition or disclosure through the date that we filed this Form 10-K with the Securities and Exchange Commission (SEC).
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Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America.GAAP. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, income taxes, stock-based compensation, loss contingencies, purchase price allocation for business combinations, and useful lives of property, plantprojections and equipment.assumptions used in related impairment assessments. Actual results could differ materially from those estimates.
(b) Revenue Recognition
The Company’sCompany follows Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), under which revenue consists primarilyis recognized when control of advertising sales. Advertisingthe promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company's revenues are principally derivedprimarily advertising fees generated from the salepublishing of advertising in Asia Pacific, Europetravel and North Americaentertainment deals on the Travelzoo website, in the Travelzoo Top 20 e-mail newsletter, email newsletters, in Newsflash,Standalone email newsletters and fromthrough the Travelzoo Network. The Company also generates revenuetransaction-based revenues from the sale of vouchers through(our Local Deals and Getaways offerings), operation of our Local Dealshotel booking platform and Getaway e-mail alert serviceslimited offerings of vacation packages, as well as subscription revenues from Jack's Flight Club and, providing hotel bookings.
For fixed-fee website advertising, the resulting receivable is reasonably assured. The Company evaluates each of these criteria as follows:
For Top 20 or Newsflash insertions, which are recognized upon delivery. The majority of insertion orders have terms that beginemail newsletters and end in a quarterly reporting period. In the cases where at the end of a quarterly reporting period the term of an insertion order is not complete,other email products, the Company allocatesrecognizes revenues when the total arrangement feeemails are delivered to its members.
For cost-per-click advertising, whereby an advertiser pays the Company when a user clicks on an ad (typically served on Travelzoo properties or Travelzoo Network partner properties), the Company recognizes revenues each element basedtime a user clicks on the relative estimated selling price of each element. ad.
The Company recognizes revenue foralso offers clients other advertising models whereby an advertiser pays the period based on elements delivered during the period. The Company uses prices stated on its internal rate card, which represents stand-alone sales prices, to establish estimated selling prices. The stand-alone price is the price that would be charged if the advertiser purchased only the individual insertion. Fees for variable-fee advertising arrangements are recognized based on the number of impressionstimes their advertisement is displayed number of clicks delivered, number of emails sent(whether on Travelzoo properties, email advertisements, Travelzoo Network properties, social platforms or number of referrals generated duringother media properties). For these instances, the period.Company recognizes revenues each time an ad is displayed.
For Local Deals and Getaway products,Getaways prepaid voucher sales, the Company earns a fee for acting as an agent in these transactions which is recorded on athe sale, while vouchers can subsequently be redeemed for goods or services with third-party merchants. Revenues are, accordingly, presented net basisof amounts due to third-party merchants for fulfilling the underlying goods and is included in revenue upon completionservices, and net of estimated future refunds to consumers, as the terms of the voucher sale.vouchers permit. Certain merchant contracts in foreign locations allow usthe Company to retain fees related tothe proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers sold that arewill ultimately not be redeemed by purchasers upon expiration, which we recognizeand records the estimate as revenue afterrevenues in the expiration of the redemption period and after there are no further obligations to provide funds to merchants, members or others.same period.
Commission revenues generated through provision offrom bookings on our hotel booking reservations to hotelsplatform are recognized uponratably over the periods of guest stays, net of an allowance for estimated date the stay occurs at the hotel, which includes estimates of cancellations, of the hotel bookings based upon historical patterns. IfFor bookings of non-cancelable reservations, where the hotelCompany’s performance obligation is deemed to be completed upon the successful booking, cannotthe Company records commission revenue at such time.
Jack’s Flight Club generates revenues from subscription fees paid by members. Subscription options are quarterly, semi-annually and annually. We recognize subscription revenues ratably over the subscription periods.
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In certain instances, the Company’s contracts with customers may include multiple performance obligations, whereby the Company allocates revenues to each performance obligation based on its standalone selling price. The Company determines standalone selling prices based on overall pricing objectives, taking into consideration the type of goods or services, geographical region of the customers, rate card pricing and customary discounts. Standalone selling prices are generally determined based on the prices charged to customers when the good or service is sold separately.
The Company relies upon certain practical expedients and exemptions provided for in Topic 606. The Company expenses sales commissions when incurred, as the amortization period would be canceled thenone year or less, which are recorded in sales and marketing expenses. In addition, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less, and contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
Deferred revenue is recognized upon booking.primarily consists of customer prepayments and undelivered Company performance obligations related to contracts comprising multiple performance obligations. At December 31, 2023, deferred revenue was $2.0 million, of which $1.5 million was for Jack's Flight Club, and $569,000 was for Travelzoo North America and Travelzoo Europe. At December 31, 2022, deferred revenue was $2.2 million, of which $1.2 million was for Jack's Flight Club, and $981,000 was for Travelzoo North America and Travelzoo Europe.
(c) Reserve for Refunds to MembersMembers; Merchant Payables
The Company estimates and records an estimateda reserve for future refunds to members based on our historical experiencemember purchases of Local Deals and Getaways vouchers, at the time revenue is recorded for Local Deals and Getaway voucher sales. We accrue costs associated with refunds in accrued expenses on the consolidated balance sheets.recorded. We consider many keyvarious factors such as the historical refunds based upon the time lag since therefund timeframes from dates of sale, historical reasons for refunds, time period that remainsperiods remaining until the deal expiration, date, any changes in refund procedures and estimates of redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which could impact the level of our future reserve for refunds to member.members. Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service,merchant partners, on behalf of whom vouchers are sold, were to deteriorate, affecting their ability to provide the goods or services to our members, additional reserves for refunds to members may be required.required and may adversely affect future revenues as the liability is recorded against revenue.
As of December 31, 2023, the merchant areCompany had approximately $5.2 million of unredeemed vouchers that had been sold, representing the Company’s commission earned. The Company estimated and recorded ina refund reserve of $268,000 for these unredeemed vouchers as of December 31, 2023, which is recorded as a reduction of revenues on the consolidated statements of operations as a reduction to revenue. We accrue costs associated with refunds inand accrued expenses and other on the consolidated balance sheets. Estimated member refundssheet. As of December 31, 2022, the Company had approximately $8.1 million of unredeemed vouchers that are determined not to be recoverable fromhad been sold, representing the merchant, are presentedCompany’s commission earned, and estimated and recorded a refund reserve of $1.3 million for these unredeemed vouchers as of December 31, 2022, as a costreduction of revenue. revenues on the consolidated statements of operations and accrued expenses and other on the consolidated balance sheet.
If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from the amount weamounts previously accrued.Merchant payables of $20.6 million as of December 31, 2023 is recorded on the consolidated balance sheet, representing amounts payable to merchants by the Company for vouchers sold but not redeemed.
(d) Business Combinations
The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date and adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date, as it obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.
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(e) Identifiable intangible assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of all intangible assets are reviewed for impairment annually, and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
(f) Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually, and whenever events or changes in circumstances indicate its carrying value may not be recoverable. The Company performs an impairment test by comparing the book value of the reporting unit to the fair value of the reporting unit utilizing a combination of valuation techniques, including an income approach (discounted cash flows) and market approach (guideline company method). The Company performed its annual impairment testing as of October 31, 2023 and 2022 and no impairment charges were identified in connection with the annual impairment tests.
(g) Allowance for Doubtful AccountsExpected Losses
The Company records a provision for doubtful accountscredit losses based on its historical experience of write-offswith uncollectible amounts due and a detailed assessment of our accounts receivable and allowance for doubtful accounts.expected credit losses. In estimating the provision for doubtful accounts,credit losses, management considers the age of the accounts receivable, historical provisioning and write-offs, the creditworthiness of the advertiser,debtor, the economic conditions of the advertiser’sdebtor’s industry and general economic conditions, among other factors. Should any of these factors change, the estimates made by management willmay also change, which could impact the level of the future provisionprovisioning for
Advertising costs are expensed as incurred. Online advertising is expensed as incurred over the period the advertising is displayed. Advertising costs for Travelzoo North America and Travelzoo Europe amounted to $8.6$8.1 million $10.4and $6.4 million and $13.7 million for the years ended December 31, 2017, 20162023 and 2015,2022, respectively. Advertising costs for Jack's Flight Club were $1.5 million and $545,000 for the years ended December 31, 2023 and 2022, respectively. Advertising costs for New Initiatives were $238,000 and $0 for the years ended December 31, 2023 and 2022, respectively.
The Company leases facilitiesdetermines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and equipment under various operating leases. These lease agreements generallyliabilities are recognized based on the present value of future minimum lease payments due over the lease term, at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent holidays rent escalation clauses and renewal periods at the Company's option.increases. The Company recognizesdoes not include options to extend or terminate until it is reasonably certain that an option will be exercised. Lease expense for scheduled rent increasesis recognized on a straight-line basis over the lease term beginning withterm. The Company uses its incremental borrowing rate based on the date it takes possession of the leased facilities and equipment. Leasehold improvements made eitherinformation available at the inceptioncommencement date in determining lease liabilities, as the Company’s leases generally do not provide an implicit rate. The Company elected not to recognize leases with an initial term of 12 months or less on its consolidated balance sheets.
The Company’s leases are reflected in operating lease ROU assets, operating lease liabilities and long-term operating lease liabilities on our accompanying consolidated balance sheet as of December 31, 2023. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease or during theterm. The Company also has a lease term are amortizedagreement for real estate which it subleases to a third party. The Company recognizes sublease income in Other income (expense), net on a straight-line basis over the current leasesublease term or estimated life, if shorter.in its consolidated statements of operations.
The Company accounts for its employee stock optionsoption grants under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant, usingemploying an option-pricingoption pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s consolidated statements of operations. See Note 8 10 to the accompanying consolidatedconsolidated financial statements for a further discussion onof stock-based compensation.
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(k) Foreign Currency
All foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are translated into U.S. dollars at exchange rates prevailing at the balance sheet dates. Revenues, costs and expenses are translated into U.S. dollars at average exchange rates for the period. Gains and losses resulting from translation are recorded as a component of accumulated other comprehensive income (loss). Realized gains and losses from foreign currency transactions are recognized as gain or loss on foreign currency in the consolidated statements of operations. Total foreign currency transaction net gaingains of $158,000$65,000 and $72,000 for 20172023 and total foreign currency transaction net losses of $211,000 and $1.1 million for 2016 and 2015,2022, respectively, are included in Other income (loss), net in the Company’s consolidated statements of operations.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, along with net operating loss carryforwards and credit carryforwards, if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, valuation allowances must beare established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Significant judgment is required in evaluating the Company's uncertain tax positions and determining the Company's provision for income taxes. Although the Company believes it has adequately reserved for its uncertain tax positions, no assurance can be given that the final tax outcomeoutcomes of these matters will not be different. The Company adjusts theseits reserves in light of changing facts and circumstances, such as the progress or closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to certain changes in equity that are excluded from net income (loss).income. For the Company, other comprehensive income (loss) includes foreign currency translation adjustments. Total comprehensive income (loss) for all periods presented has been disclosed in the consolidated statements of comprehensive loss.income.
The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer goods or services on compelling terms to our members. The outbreak of the coronavirus (COVID-19) in 2020 had an unprecedented impact on the global travel and hospitality industries. As the Company and many of our advertisers are part of the global travel and hospitality industries, the measures implemented to contain COVID-19 had a significant negative effect on our business, financial condition, results of operations and cash flows. During the pandemic, many of the Company’s advertising partners paused, canceled and/or stopped advertising. Additionally, there were significant levels of cancellations by members and partners for hotel and travel packages, and voucher refund requests. Now that COVID-19 and its lingering effects have largely subsided, many of our advertisers and partners are returning to advertise with us and we have altered certain policies to align with the changing environment (including reverting to a 14-day return window for voucher purchases and implementing a surcharge for vouchers to be fully refundable), although with the emergence of new variants, this trend could stop or even reverse, which could result in a material adverse impact on our business and financial performance. It is difficult to estimate the impact of the coronavirus, future variants or other events giving rise to a pandemic on the Company’s future revenues, results of operations, cash flows, liquidity or financial condition.
The Company’s cash, cash equivalents and accountsaccounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. The accountsAccounts receivable are derived from revenuerevenues earned from customers located in the U.S. and internationally. As of December 31, 2017,2023 and 2022, the Company did not have any customers that accounted for 10% or more ofits accounts receivable.
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As of December 31, 2016,2023, the Company had one customermerchant payables of $20.6 million related to the sale of vouchers. In the Company’s financial statements presented in this 10-K report, following GAAP accounting principles, we classified all merchant payables as current. As such, the consolidated balance sheet reflects negative net working capital (defined as current assets minus current liabilities) of $3.4 million at December 31, 2023. Payables to merchants are generally due upon the redemption of vouchers by members who purchased them from the Company. As of December 31, 2023, unredeemed vouchers have maturities ranging from January 2024 through December 2025; 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 future redemption activity, management expects that accountedcash on hand as of December 31, 2023 will be sufficient to provide for 16% of accounts receivable.working capital needs for at least the next twelve months.
(o) Cash, and Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid investments with maturities of three months or less onfrom the date of purchase. Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to use the cash for a specific purpose. Our restricted cash primarily relates to refundable security deposits for real estate leases and funds held in escrow.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total amounts shown in the statements of cash flows (in thousands):
| December 31, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 15,713 | $ | 18,693 | |||||||
| Restricted cash | 675 | 675 | |||||||||
| Cash, cash equivalents and restricted cash–discontinued operations | 1 | 10 | |||||||||
| Total cash, cash equivalents and restricted cash in the consolidated statements of cash flows | $ | 16,389 | $ | 19,378 | |||||||
(p) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Additions and improvements are capitalized. Maintenance and repairs are expensed as incurred. The Company also includes in fixed assets the capitalized cost of internal-use software and website development, including software used to upgrade and enhance its website and processes supporting the Company’s business, in accordance with the framework established and guidance provided by the FASB accounting guidance forrelating to accounting for the cost of computer software developed or obtained for internal use, and accounting for website development costs. Costs incurred in the planning stage and operating stage are expensed as incurred, while costs incurred in the application development stage and infrastructure development stage are capitalized, assuming such costs are deemed to be recoverable.
Depreciation is provideddetermined using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 3 to 5 years for computer hardware and software, capitalized internal-use software and website development costs, and office equipment and office furniture. The Company depreciates leasehold improvements over the term of the lease or the estimated useful life of the asset, whichever is shorter.
The Company accounts for long-lived assets in accordance with the accounting standard relating to impairment of long-lived assets, which requires an impairment loss to be recognized on assets to be held and used if the carrying amount of a long-lived asset group is not recoverable from its undiscounted cash flows. The amount of the impairment loss is measured as the difference between the carrying amount and the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company evaluates long-lived assets for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. No impairment loss was recognized during yearsthe year ended December 31, 2017, 20162023 and 2015.2022.
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The Company adopted ASU 2015-17 in the first quarter of 2017 on a prospective basis. Accordingly, the Company reclassified current deferred taxes of $793,000 to noncurrent on its March 31, 2017 consolidated balance sheet. No prior periods were retrospectively adjusted.
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effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to Employee Share-Based Payment Accounting," which is intendedapply this update on a modified retrospective basis with a cumulative-effect adjustment to simplify several aspectsretained earnings as of the accounting for employee share-based payment transactions, includingbeginning of the income tax consequences, classificationperiod of awards as either equity or liabilities, and classification on the statement of cash flows.adoption. The Company adopted the ASU 2016-09 in the first quarter of 2017. The Company electedprospectively on January 1, 2023. This ASU has not and is currently not expected to account for forfeitures as they occur and did not have unrecognized tax benefits of stock-based compensation; therefore, the adoption of this guidance did not have a material impact on our consolidated financial position or results of operations.statements.
In May 2014,November 2023, the FASBFinancial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most of the existing revenue recognition guidance in U.S. GAAP when it becomes effective. This new accounting standard2023-07 is effective for the Company for annual periods inbeginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2017 (as amended in August 2015 by ASU 2015-14, "Deferral of the Effective Date"). In December 27, 2016, FASB issued ASU 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts2024, with Customers," which addresses loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type
In February 2016, the FASB issued an accounting standard update ASU 2016-02, "Leases," which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability on its balance sheet. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. This accounting standard update will be effective for the Company on January 1, 2019. For operating leases with terms longer than 12 months, the Company will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The Company is currently in the process of evaluating the impact and expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.
Note 2: Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by adjusting the weighted-average number of common shares outstanding for the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury stock method.
The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Numerator: | |||||||||||
| Net income attributable to Travelzoo—continuing operations | $ | 11,906 | $ | 6,693 | |||||||
| Net income (loss) attributable to Travelzoo—discontinued operations | 460 | (59) | |||||||||
| Denominator: | |||||||||||
| Weighted average common shares—basic | 14,897 | 12,372 | |||||||||
| Effect of dilutive securities: stock options | 67 | 189 | |||||||||
| Weighted average common shares—diluted | 14,964 | 12,561 | |||||||||
| Income (loss) per share—basic | |||||||||||
| Continuing operations | $ | 0.80 | $ | 0.54 | |||||||
| Discontinued operations | 0.03 | — | |||||||||
| Net income (loss) per share —basic | $ | 0.83 | $ | 0.54 | |||||||
| Income (loss) per share—diluted | |||||||||||
| Continuing operations | $ | 0.80 | $ | 0.53 | |||||||
| Discontinued operations | 0.03 | — | |||||||||
| Net income (loss) per share—diluted | $ | 0.83 | $ | 0.53 | |||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Numerator: | |||||||||||
| Income from continuing operations | $ | 1,592 | $ | 6,007 | $ | 8,523 | |||||
| Income from discontinued operations, net of income taxes | 1,938 | 624 | 2,341 | ||||||||
| Net income | $ | 3,530 | $ | 6,631 | $ | 10,864 | |||||
| Denominator: | |||||||||||
| Weighted average common shares—basic | 12,882 | 13,997 | 14,722 | ||||||||
| Effect of dilutive securities: stock options | 12 | — | — | ||||||||
| Weighted average common shares—diluted | 12,894 | 13,997 | 14,722 | ||||||||
| Income per share—basic: | |||||||||||
| Continuing operations | $ | 0.12 | $ | 0.43 | $ | 0.58 | |||||
| Discontinued operations | 0.15 | 0.04 | 0.16 | ||||||||
| Net income per share—basic | $ | 0.27 | $ | 0.47 | $ | 0.74 | |||||
| Income per share—diluted: | |||||||||||
| Continuing operations | $ | 0.12 | $ | 0.43 | $ | 0.58 | |||||
| Discontinued operations | 0.15 | 0.04 | 0.16 | ||||||||
| Net income per share—diluted | $ | 0.27 | $ | 0.47 | $ | 0.74 | |||||
For the years ended December 31, 2017, 20162023 and 2015,2022, options to purchase 550,000, 600,000 and 775,000 750,000 shares of common stock respectively, were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.
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Note 3: Acquisitions
Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc., a Related-Party
In connection with the acquisition of MTE, formerly a wholly-owned subsidiary of Azzurro, the Company completed a private placement of newly issued shares with Azzurro. Ralph Bartel, who founded the Company, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro. Azzurro was the Company’s largest shareholder at the time of the MTE acquisition and, as of December 31, 2022, Azzurro and Ralph Bartel, in his individual capacity, owned approximately 50.3% the Company's outstanding shares. On December 28, 2022, the stockholders of Travelzoo approved the issuance and sale of 3.4 million shares of common stock (the “Shares”) of Travelzoo to Azzurro, in exchange for certain consideration, and on December 30, 2022 (the “Closing Date”), the transaction was consummated. The closing price of Travelzoo’s common stock on December 30, 2022 was $4.45 per share, resulting in an aggregate fair value of the Shares of $15.2 million. The consideration for the Shares consisted of the following: (a) $1.0 million in cash paid on the Closing Date; (b) $4.8 million paid in the form of a promissory note, carrying a 12% interest rate per annum, issued on the Closing Date and payable by June 30, 2023; and (c) the transfer to the Company of all outstanding capital stock of MTE, which was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date. The Company recorded the $4.8 million promissory note as Note receivable from shareholder in the stockholders' equity section on the consolidated balance sheet as of December 31, 2022. In October 2023, the Company and Azzurro agreed to a payment plan for payment of the promissory note in five installments, ending in February 2024, with interest on the outstanding principal accruing at 16% per annum beginning on July 1, 2023. During the year ended December 31, 2023, Azzurro paid $3.0 million of principal and $604,000 of interest. The remaining principal amount of $1.8 million promissory note is collateralized by the Shares and is expected to be paid in 2024.
Travelzoo acquired the entire business of MTE. The acquisition was accounted for as an asset acquisition in accordance with ASC Topic 805 – Business Combinations. The fair value of the consideration paid by Travelzoo and allocation of that amount to the underlying assets, on a relative fair value basis, was recorded by the Company as of the Closing Date. Additionally, costs directly related to the MTE acquisition of $184,000 were capitalized as a component of the Purchase Price.
As a result of the MTE acquisition, the Company also assumed MTE’s historical net operating loss carryforwards of approximately $64.7 million. While these net operating losses (NOLs) may be used to offset future taxable income, given certain accounting considerations for the transaction, the Company determined it is appropriate to record an uncertain tax benefit liability in accordance with ASC Topic 740—Income Taxes. Subject to the provisions of the SPA, Azzurro agreed to indemnify Travelzoo for tax related liabilities in the event of the inability of the Company to utilize any NOLs of MTE as a result of any breach of or inaccuracy in any representation or warranty made by Azzurro, which included the representation that NOLs will be available for use by the Company after the closing for federal and analogous state income tax purposes, including pursuant to section 381(a) of the U.S. tax code, and that, as of the date of the SPA, no NOLs of MTE are subject to any limitation, restriction or impairment on its use. Based on the terms of the agreement, the Company believes that with the uncertain tax position recognized related to the acquired NOLs, the Company has the right to claim losses against Azzurro if NOLs are not able to be utilized. Therefore, the Company recorded an indemnification asset of $9.5 million for the relative fair value of this indemnification. Any losses indemnified by Azzurro related to the inability to utilize MTE’s net operating loss carryforwards shall be satisfied by Azzurro returning to the Company the number of shares of common stock of Travelzoo corresponding to the value of the loss. Accordingly, the Company has classified this tax indemnification asset as contra-equity in the accompanying consolidated financial statements.
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The following table represents the allocation of the total cost of the MTE acquisition to the assets acquired (in thousands):
| Fair Value | |||||
| Consideration for MTE assets | |||||
| Fair value of Travelzoo common stock issued | $ | 15,175 | |||
| Direct transaction costs | 184 | ||||
| Less: | |||||
| Cash received from Azzurro Capital Inc. | (1,000) | ||||
| Notes receivable from Azzurro Capital Inc. | (4,753) | ||||
| Total consideration for MTE assets | $ | 9,606 | |||
| Relative fair value of the assets acquired | |||||
| Cash and cash equivalents | $ | 6 | |||
| Prepaid expenses and other | 45 | ||||
| Property and equipment | 18 | ||||
| Tax indemnification asset | 9,537 | ||||
| Total assets acquired | $ | 9,606 | |||
Travelzoo (Europe) Limited, Sucursal en España, Acquired Secret Escapes Limited’s Spanish Business Unit
On March 3, 2022, Travelzoo (Europe) Ltd, Sucursal en España, the Spanish branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Spain”), entered into a Business Unit Purchase Agreement (“BUPA”) with Secret Escapes Limited (“Secret Escapes”) for the purchase of its Spanish business unit, which included, among other things, a database of approximately 940,000 members. The purchase price was 400,000 Euros, with an earn-out opportunity of an additional 100,000 Euros payable by the Company upon the achievement of certain metrics by the business unit in six months (September 2022). The metrics were not achieved and thus no payments were made on the earn-out. Travelzoo was granted the right to use the Secret Escapes name exclusively in Spain for a continuity period of six (6) months. The BUPA contained typical representations and warranties and indemnification protections, as well as a restrictive covenant, whereby Secret Escapes agreed to leave the Spanish market for at least three (3) years, subject to a right to purchase a waiver.
Asset Purchase Agreement between Metaverse Travel Experiences, Inc. f/k/a Azzurro Brands Inc. and Travelzoo
On March 17, 2022, the Company, as Buyer, entered into an Asset Purchase Agreement (the “APA”) with Metaverse Travel Experiences, Inc. f/k/a Azzurro Brands Inc., a New York corporation (the “Seller”) and a wholly-owned subsidiary of Azzurro Capital Inc., the Company’s largest stockholder. Pursuant to the APA, the Company acquired certain assets, primarily comprised of all U.S. members of Secret Escapes Limited, which Seller acquired in March 2021 and licensed exclusively to Travelzoo pursuant to the previously disclosed License Agreement, dated as of March 12, 2021 (the “License Agreement”), in accordance with data privacy and other applicable laws. The License Agreement allowed the Company to exclusively utilize the assets in exchange for a license fee of $412,500 per quarter with a one-year term that automatically renewed. The License Agreement was reviewed and unanimously approved by the Audit Committee of the Board of Directors, which consists solely of independent directors. The purchase price for the transaction was $1.75 million, with $600,000 paid in cash upon closing in March 2022 and the remaining $1.15 million payable in the form of a credit with Seller relating to prepaid license fees, under the License Agreement. The remaining commitment of the Company under the License Agreement for the then-current remaining term (equal to $825,000) was eliminated.
The Company recorded the transactions with both Secret Escapes Limited and Metaverse Travel Experiences, Inc. as asset acquisitions as the assets acquired and liabilities assumed do not meet the definition of a business in Accounting Standards Codification (“ASC”) 805-10. Cost accumulation model was used to account for the cost of the acquisition and the 100,000 Euros earn-out was considered as contingent consideration based on ASC 805-50. Travelzoo acquired the database of members and recorded $2.2 million intangible assets from both agreements.
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Intangible Assets
The following table presents the gross fair values and estimated useful lives of intangible assets (in thousands):
| Fair Value | Estimated Life (Years) | ||||||||||
| Customer relationships (Jack's Flight Club) | $ | 3,500 | 5.0 | ||||||||
| Trade name (Jack's Flight Club) | 2,460 | indefinite | |||||||||
| Non-compete agreement (Jack's Flight Club) | 660 | 4.0 | |||||||||
| Intangible assets (Secret Escapes Spain member database) | 445 | 3.0 | |||||||||
| Intangible assets (Secret Escapes U.S. member database) | 1,751 | 2.3 | |||||||||
Assets Measured at Fair Value on a Non-recurring Basis
The Company’s non-financial assets, such as goodwill, intangible assets and property and equipment, are adjusted to fair value if an impairment is recognized during the period. The fair value measurements are based on Level 3 inputs which are unobservable inputs based on management assumptions used to measure assets at fair value.
The goodwill assessment was performed by comparing the fair value of the reporting units to their carrying value. The fair value estimates for the reporting units were based on a blended analysis of the present value of future discounted cash flows and the market value approach, using Level 3 inputs. The indefinite-lived intangible assets assessment was performed using the relief-from-royalty method, which includes unobservable inputs, classified as Level 3 inputs, including projected revenues and an approximate 5% royalty rate.
The Company performed an annual impairment test in October 2023 and did not identify any indicators of impairment for the year ended December 31, 2023.The Company performed its annual test as of October 31, 2022 and a Trade name impairment charge of $200,000 was recorded as “General and administrative expenses” for Jack's flight club, as revenue for Jack's Flight Club was negatively impacted by the pandemic and did not meet forecasted growth expectations. No impairment charge was identified and recorded for goodwill in 2022. In 2020, the Company recorded a goodwill impairment of $2.1 million and a Trade name impairment of $810,000 for Jack's Flight Club, due to the pandemic.
Amortization of Acquired Intangible Assets
The following table presents the activities of intangible assets for the years ended December 31, 2023 and 2022 (in thousands):
| Jack's Flight Club | Secret Escapes Spain member database | Secret Escapes U.S. member database | |||||||||||||||
| Intangible assets, net—January 1, 2022 | $ | 3,426 | — | — | |||||||||||||
| Acquisitions—March 2022 | — | 445 | 1,751 | ||||||||||||||
| Amortization of intangible assets with definite lives | (875) | (118) | (778) | ||||||||||||||
| Impairment of trade name—December 31, 2022 | (200) | — | — | ||||||||||||||
| Intangible assets, net—December 31, 2022 | 2,351 | 327 | 973 | ||||||||||||||
| Amortization of intangible assets with definite lives | (641) | (141) | (778) | ||||||||||||||
| Intangible assets, net—December 31, 2023 | $ | 1,710 | $ | 186 | $ | 195 | |||||||||||
Amortization expense for acquired intangibles was $1.6 million and $1.8 million for the years ended December 31, 2023 and 2022, respectively. Expected future amortization expense of acquired intangible assets as of December 31, 2023 is as follows (in thousands):
| Years ending December 31, | |||||
| 2024 | $ | 594 | |||
| 2025 | 47 | ||||
| $ | 641 | ||||
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The Company performed its annual impairment testing of Trade name as of October 31, 2023 using a relief from royalty method. No impairment was identified in 2023. As of December 31, 2023, the carrying value of the Trade name was $1.5 million. The Company's annual impairment test as of October 31, 2022 indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired and an impairment charge of $200,000was recorded as general and administrative expenses.
Note 4: Debt
On April 24, 2020 and May 5, 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association. The loans had a maturity of two (2) years from the disbursement of the funds and an annual interest rate of 1%. The Company used the funds from these loans only for the purposes included in the PPP, including payroll, employee benefits, and rent, and also intends to apply for forgiveness of a portion of the loans in compliance with the CARES Act.
In 2021, the Company settled the $535,000 PPP loan, $494,000 was forgiven and the remaining outstanding principal balance of the loan and interest of $111,000 was repaid. During 2021, the principal and the interest of the $3.1 million PPP loan were forgiven. It is possible that the SBA could subsequently audit the forgiven loans. The Company believes it was eligible to participate in PPP, calculated the loan amount correctly, spent loan proceeds on allowable uses and is entitled to loan forgiveness. The Company will hold onto its financial documents relating to the PPP loans for six years as required.
Note 3:5: Balance Sheet Components
Prepaid expenses andand other consistconsists of the following (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Prepaid expenses | $ | 1,084 | $ | 764 | |||||||
| Notes receivable — current | — | 232 | |||||||||
| Deposits | 286 | 153 | |||||||||
| Other current assets | 90 | 140 | |||||||||
| Total prepaid expenses and other | $ | 1,460 | $ | 1,289 | |||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Prepaid expenses | $ | 1,859 | $ | 1,334 | |||
| Other current assets | 282 | 439 | |||||
| Total prepaid expenses and other | $ | 2,141 | $ | 1,773 | |||
Property and equipment consistconsists of the following (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Office equipment and furnishings | $ | 2,141 | $ | 5,005 | |||||||
| Capitalized internal-use software and website development | 2,230 | 4,601 | |||||||||
| Leasehold improvements | 804 | 2,414 | |||||||||
| Computer hardware and software | 45 | 1,728 | |||||||||
| Property and equipment | 5,220 | 13,748 | |||||||||
| Less accumulated depreciation and amortization | (4,642) | (13,091) | |||||||||
| Total property and equipment, net | $ | 578 | $ | 657 | |||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Computer hardware and software | $ | 3,337 | $ | 4,969 | |||
| Office equipment and office furniture | 8,002 | 8,802 | |||||
| Capitalized internal-use software and website development | 4,383 | 3,265 | |||||
| Leasehold improvements | 6,629 | 6,259 | |||||
| 22,351 | 23,295 | ||||||
| Less accumulated depreciation and amortization | (17,430 | ) | (17,137 | ) | |||
| Total | $ | 4,921 | $ | 6,158 | |||
Depreciation expense was $1.8 million, $2.1 million,$291,000 and $2.2 million$418,000 for the years ended December 31, 2017, 20162023 and 2015,2022, respectively.
Amortization of capitalized internal-use software and website development costs was $321,000, $460,000was $39,000 and $308,000$1,000 for the years ended December 31, 2017, 20162023 and 2015,2022, respectively.Amortization of acquired intangible assets is presented in Note 3 above.
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Changes to the allowance for doubtful accountscredit losses and reserve for member refunds are as follows (in thousands):
Allowance for doubtful accounts | Reserve for member refunds | ||||||
| Balance at January 1, 2015 | $ | 444 | $ | 799 | |||
| Additions — charged to costs and expenses, or contra revenue, net | 295 | 776 | |||||
| Deductions — recoveries of amounts previously charged-off | (179 | ) | — | ||||
| Deductions — write-offs | (176 | ) | (1,045 | ) | |||
| Balance at December 31, 2015 | 384 | 530 | |||||
| Additions — charged to costs and expenses, or contra revenue, net | 107 | 507 | |||||
| Deductions — recoveries of amounts previously charged-off | (89 | ) | — | ||||
| Deductions — write-offs | (107 | ) | (563 | ) | |||
| Balance at December 31, 2016 | 295 | 474 | |||||
| Additions — charged to costs and expenses, or contra revenue, net | 158 | 942 | |||||
| Deductions — recoveries of amounts previously charged-off | (125 | ) | — | ||||
| Deductions — write-offs | (13 | ) | (886 | ) | |||
| Balance at December 31, 2017 | $ | 315 | $ | 530 | |||
| Allowance for doubtful accounts | Reserve for member refunds | ||||||||||
| Balance at December 31, 2021 | $ | 2,094 | $ | 5,166 | |||||||
| Additions — charged to costs and expenses, or contra revenue | 54 | 15 | |||||||||
| Deductions — recoveries of amounts previously reserved | (470) | (3,006) | |||||||||
| Deductions — write-offs or refunds | (210) | (897) | |||||||||
| Balance at December 31, 2022 | 1,468 | 1,278 | |||||||||
| Additions — charged to costs and expenses, or contra revenue | 172 | — | |||||||||
| Deductions — recoveries of amounts previously reserved | (133) | (459) | |||||||||
| Deductions — write-offs or refunds | (23) | (551) | |||||||||
| Balance at December 31, 2023 | $ | 1,484 | $ | 268 | |||||||
Accrued expenses and other consistconsists of the following (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Accrued compensation expense | 1,381 | 1,744 | |||||||||
| Reserve for member refunds | $ | 268 | $ | 1,278 | |||||||
| Accrued advertising expense | 743 | 538 | |||||||||
| Other accrued expenses | 1,266 | 1,489 | |||||||||
| Total accrued expenses and other | $ | 3,658 | $ | 5,049 | |||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Accrued advertising expense | $ | 1,727 | $ | 1,828 | |||
| Accrued compensation expense | 3,540 | 3,288 | |||||
| Reserve for member refunds | 539 | 474 | |||||
| Other accrued expenses | 2,396 | 2,678 | |||||
| Deferred rent | 500 | 431 | |||||
| Total accrued expenses and other | $ | 8,702 | $ | 8,699 | |||
At December 31, 20172023 and 2016,2022, accounts receivable, accounts payable and accrued expenses are not measured at fair value; however, the Company believes that the carrying amounts of these assets and liabilities are a reasonable estimate of their fair valuevalues because of their relative short maturity.maturities.
Note 4:6: Commitments and Contingencies
From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if management can estimate the potential liability and believes it is probable that the matter will be ruled on adversely. Accruals for legal contingencies were not material as of December 31, 2023 or 2022. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.
The Company was formed as a result of a combination and merger of entities founded by Ralph Bartel. Azzurro, of which the Ralph Bartel 2005 Trust (of which he is the sole beneficiary) is the controlling shareholder, holds approximately 40.2% of the Company’s principal stockholder, Ralph Bartel.outstanding shares as of December 31, 2023. In 2002, Travelzoo.com Corporation was merged into Travelzoo. Under and subject to the terms of the merger agreement, holders of promotional shares of Travelzoo.com Corporation (“Netsurfers”) who established that they had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to receive one share of Travelzoo in exchange for each share of common stock of Travelzoo.com Corporation.Netsurfers. In 2004, two years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for NetsurferNetsurfers promotional shares as further described below.
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Therefore, the Company is continuing its voluntary program under which it makes cash payments to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who establish that they satisfy the original conditions required for them to receive shares of Travelzoo.com Corporation,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 the Company, except those individuals for whichwhom their residence was unknown to the Company.Company. The accompanying consolidated financial statements include chargesCompany did not make any such payments in general and administrative expenses of $1,000, $2,000 and $1,000 for the years ended December 31, 2017, 2016 and 2015, respectively.2023 or 2022.
The total cost of this program cannot be reliably estimated because it is based on the ultimate number of valid requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the liability because the amount of cash payments under the program is based in part on the recent level of the stock price at the date valid requests are received. The Company does not know how many of the requests for shares originally received by Travelzoo.com CorporationNetsurfers in 1998 were valid, but the Company believes that only a portion of such requests were valid. In order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in Travelzoo.com Corporation.Netsurfers.
The Company leases office space in Australia, Canada, China, France, Germany, Hong Kong, Japan, Singapore, Spain, Taiwan, the U.K., and the U.S. under operating leases. Our leases have remaining terms ranging from less than one year to up to seven years. The Company maintains standby letters of credit (“LOC”) to serve as collateral issued to the landlords. The LOCs are collateralized with cash which expire between March 2018 and November 2024.is included in the line item “Restricted cash” in the Consolidated Balance Sheets.
Rent expense was $5.8$2.8 million$5.3 and $2.6 million and $5.8 million for the years ended December 31, 2017, 20162023 and 2015,2022, respectively. Some of these lease agreements have free or escalating rent payment provisions. We recognize rent expense under such arrangements on a straight line basis.The Company’s rental income from sublease was approximately $271,000 and $353,000 for the years ended December 31, 2023 and 2022. See Note 14–Leases for more information.
The Company has purchase commitments aggregating approximately $535,000 as of December 31, 2023, which represent the minimum obligations the Company has under agreements with certain suppliers.third-party service providers. These minimum obligations are less than the Company's projected use for those periods. Payments may be more than the minimum obligations based on actual use.
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Operating leases | $ | 5,320 | $ | 4,505 | $ | 3,833 | $ | 3,205 | $ | 2,370 | $ | 3,258 | $ | 22,491 | |||||||||||||
| Purchase obligations | 1,446 | 17 | 11 | — | — | — | 1,474 | ||||||||||||||||||||
| Total commitments | $ | 6,766 | $ | 4,522 | $ | 3,844 | $ | 3,205 | $ | 2,370 | $ | 3,258 | $ | 23,965 | |||||||||||||
Note 5:7: Income Taxes
The components of income before income tax expense are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| U.S. | $ | 15,319 | $ | 9,636 | |||||||
| Foreign | 1,794 | 322 | |||||||||
| $ | 17,113 | $ | 9,958 | ||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| U.S. | $ | 6,953 | $ | 7,525 | $ | 3,442 | |||||
| Foreign | (2,235 | ) | 2,474 | (864 | ) | ||||||
| $ | 4,718 | $ | 9,999 | $ | 2,578 | ||||||
Income tax expense consists of current and deferred components, further categorized by federal, state and foreign jurisdictions, as shown below. The current provision is generally that portion of income tax expense that is currently payable to the taxing authorities. The Company makes estimated payments of these amounts during the year. The deferred tax provision results from changes in the Company’s deferred tax assets (future deductible amounts) and tax liabilities (future taxable amounts), which are presented in the table below:
| Current | Deferred | Total | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Year Ended December 31, 2023 | |||||||||||||||||
| Federal | $ | 3,267 | $ | 7 | $ | 3,274 | |||||||||||
| State | 664 | 72 | 736 | ||||||||||||||
| Foreign | 1,126 | (31) | 1,095 | ||||||||||||||
| $ | 5,057 | $ | 48 | $ | 5,105 | ||||||||||||
| Year Ended December 31, 2022 | |||||||||||||||||
| Federal | $ | 1,772 | $ | 528 | $ | 2,300 | |||||||||||
| State | 376 | 221 | 597 | ||||||||||||||
| Foreign | 348 | 25 | 373 | ||||||||||||||
| $ | 2,496 | $ | 774 | $ | 3,270 | ||||||||||||
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| Current | Deferred | Total | |||||||||
| (In thousands) | |||||||||||
| Year Ended December 31, 2017 | |||||||||||
| Federal | $ | 1,988 | $ | 24 | $ | 2,012 | |||||
| State | 198 | (64 | ) | 134 | |||||||
| Foreign | 905 | 75 | 980 | ||||||||
| $ | 3,091 | $ | 35 | $ | 3,126 | ||||||
| Year Ended December 31, 2016 | |||||||||||
| Federal | $ | 2,403 | $ | (123 | ) | $ | 2,280 | ||||
| State | 395 | 23 | 418 | ||||||||
| Foreign | 1,391 | (97 | ) | 1,294 | |||||||
| $ | 4,189 | $ | (197 | ) | $ | 3,992 | |||||
| Year Ended December 31, 2015 | |||||||||||
| Federal | $ | (6,475 | ) | $ | (238 | ) | $ | (6,713 | ) | ||
| State | 281 | 51 | 332 | ||||||||
| Foreign | 454 | (18 | ) | 436 | |||||||
| $ | (5,740 | ) | $ | (205 | ) | $ | (5,945 | ) | |||
Income tax expense differed from the amounts computed by applying the U.S. federal statutory tax raterates applicable to the Company’s level of pretax income as a result of the following (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Federal tax at statutory rates | $ | 3,594 | $ | 2,091 | |||||||
| State taxes, net of federal income tax benefit | 584 | 471 | |||||||||
| Change of valuation allowance | — | (34) | |||||||||
| Uncertain tax positions | 43 | 107 | |||||||||
| Foreign income taxed at different rates | 539 | (38) | |||||||||
| Stock-based compensation expense | 30 | 469 | |||||||||
| Other | 315 | 204 | |||||||||
| Total income tax expense | $ | 5,105 | $ | 3,270 | |||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Federal tax at statutory rates | $ | 1,651 | $ | 3,500 | $ | 902 | |||||
| State taxes, net of federal income tax benefit | 113 | 276 | 219 | ||||||||
| Change of valuation allowance | 1,577 | 895 | 816 | ||||||||
| Uncertain tax positions | (907 | ) | (132 | ) | (7,935 | ) | |||||
| Foreign income taxed at different rates | 72 | (509 | ) | (124 | ) | ||||||
| U.S. tax reform (the Tax Act) | 681 | — | — | ||||||||
| Tax on undistributed earnings | (173 | ) | — | — | |||||||
| Non-deductible expenses and other | 112 | (38 | ) | 177 | |||||||
| Total income tax expense | $ | 3,126 | $ | 3,992 | $ | (5,945 | ) | ||||
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss and credit carryforwards | $ | 3,349 | $ | 4,935 | |||||||
| Operating lease liabilities | 1,947 | 2,417 | |||||||||
| State income taxes | 109 | 74 | |||||||||
| Accruals and allowances | 391 | 627 | |||||||||
| Stock-based compensation | 432 | 256 | |||||||||
| Unrealized foreign exchange losses | 363 | 329 | |||||||||
| Deferred revenue | 61 | 191 | |||||||||
| Property, equipment and intangible assets | 156 | — | |||||||||
| Capital loss carryforward | 404 | 410 | |||||||||
| Total deferred tax assets | 7,212 | 9,239 | |||||||||
| Valuation allowance | (2,878) | (4,455) | |||||||||
| Total deferred tax assets net of valuation allowance | 4,334 | 4,784 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease right-of-use assets | (1,138) | (1,416) | |||||||||
| Property, equipment and intangible assets | — | (146) | |||||||||
| Total deferred tax liabilities | (1,138) | (1,562) | |||||||||
| Net deferred tax assets | $ | 3,196 | $ | 3,222 | |||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Deferred tax assets: | |||||||
| Net operating loss carryforwards | $ | 9,250 | $ | 7,239 | |||
| State income taxes | 65 | 159 | |||||
| Accruals and allowances | 287 | 447 | |||||
| Stock based compensation | 744 | 771 | |||||
| Unrealized foreign exchange losses | 191 | 149 | |||||
| Deferred revenue | 87 | 113 | |||||
| Deferred rent | 418 | 625 | |||||
| Total deferred tax assets | 11,042 | 9,503 | |||||
| Valuation allowance | (9,249 | ) | (7,168 | ) | |||
| Total deferred tax assets net of valuation allowance | 1,793 | 2,335 | |||||
| Deferred tax liabilities: | |||||||
| U.S. tax on undistributed earnings | — | (173 | ) | ||||
| Property, equipment and intangible assets | (277 | ) | (351 | ) | |||
| Total deferred tax liabilities | (277 | ) | (524 | ) | |||
| Net deferred tax assets | $ | 1,516 | $ | 1,811 | |||
Changes in the deferred tax assets valuation allowance for the years ended December 31, 2015, 20162023 and 20172022 are as follows (in thousands):
| Balance at the beginning of the year | Charged (Credited) to expenses | Charged (Credited) to other account (*) | Balance at end of year | ||||||||||
| Deferred tax assets valuation allowance | |||||||||||||
| 2015 | $ | 6,431 | 816 | (307 | ) | $ | 6,940 | ||||||
| 2016 | $ | 6,940 | 895 | (667 | ) | $ | 7,168 | ||||||
| 2017 | $ | 7,168 | 1,577 | 504 | $ | 9,249 | |||||||
| Balance at the beginning of the year | Charged (Credited) to expenses | Charged (Credited) to other account (*) | Balance at end of year | ||||||||||||||||||||
| Deferred tax assets valuation allowance | |||||||||||||||||||||||
| 2023 | $ | 4,455 | (1,577) | $ | 2,878 | ||||||||||||||||||
| 2022 | $ | 8,717 | — | (4,262) | $ | 4,455 | |||||||||||||||||
(*) Amounts not charged (credited) to expenses are charged (credited) to stockholder'sstockholders' equity or deferred tax assets (liabilities).
As of December 31, 2017,2023, the Company has a valuation allowance of approximately $9.2$2.3 million related to foreign net operating loss carryforwards (“NOL”) carryforwards of approximately $38.2$18.2 million primarily related to the Company's Asia Pacific entities (whose operations were classified as discontinued operations as of March 2020), for which it is more likely than not that the tax benefit will not be realized.
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The amountliquidations of Travelzoo Australia, Travelzoo (Hong Kong) Limited and Travelzoo Local (Hong Kong) were completed in 2023, resulting in a write-off of the valuation allowance represented an increaseremaining net deferred tax assets of approximately $2.1$1.8 million overfor these entities, offset by the amount recorded asrelease of December 31, 2016, and was due to the increase in foreign operating losses.corresponding valuation allowance. If not utilized, $10.9 million of the remaining foreign NOL of $22.2 million may be carried forward indefinitely, and foreign$7.3 million will expire at various times between 2024 and 2027.
As of December 31, 2023, the Company has U.S. federal NOL carryforwards of $16.0$48.4 million as a result of the acquisition of MTE discussed in Note 3 above. If not utilized, $7.4 million of the remaining NOL may be carried forward indefinitely, and $41.0 million will expire at various times between 20172030 and 2025.2037. As of December 31, 2023, the Company had state and local NOL carryforwards of $121.7 million, which expire at various times between 2035 and 2042. The Company has not recorded these net operating losses because an uncertain tax position has been recorded relating to them.
As of December 31, 2023, the Company is permanently reinvested in certain non-U.S. subsidiaries and does not have a deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax liability attributable to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S. subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is approximately $775,000 at December 31, 2023.
The total amount of gross unrecognized tax benefits was $725,000was $23.9 million as of December 31, 2017,2023, of which up to $588,000$16.6 million would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and ending amountamounts of gross unrecognized tax benefits in 2015, 2016,2022 and 20172023 is as follows (in thousands):
| Gross unrecognized tax benefits balance at December 31, 2021 | $ | 1,044 | |||
| Increase related to current year tax positions | 15,833 | ||||
| Settlements | — | ||||
| Gross unrecognized tax benefits balance at December 31, 2022 | 16,877 | ||||
| Increase related to prior year tax positions | 7,018 | ||||
| Settlements | — | ||||
| Gross unrecognized tax benefits balance at December 31, 2023 | $ | 23,895 | |||
| Gross unrecognized tax benefits balance at January 1, 2015 | $ | 10,025 | |
| Increase related to prior year tax positions | 898 | ||
| Decrease related to prior year tax positions | — | ||
| Increase related to current year tax positions | 11 | ||
| Settlements | — | ||
| Lapse of statute of limitations | (8,264 | ) | |
| Gross unrecognized tax benefits balance at December 31, 2015 | 2,670 | ||
| Increase related to prior year tax positions | 10 | ||
| Decrease related to prior year tax positions | — | ||
| Increase related to current year tax positions | — | ||
| Settlements | — | ||
| Lapse of statute of limitations | (323 | ) | |
| Gross unrecognized tax benefits balance at December 31, 2016 | 2,357 | ||
| Increase related to prior year tax positions | 21 | ||
| Decrease related to prior year tax positions | (737 | ) | |
| Increase related to current year tax positions | 4 | ||
| Settlements | (920 | ) | |
| Lapse of statute of limitations | — | ||
| Gross unrecognized tax benefits balance at December 31, 2017 | $ | 725 | |
The Company’s policy is to include interest and penalties related to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that such determination is made. At December 31, 2017,2023, the Company had approximately $651,000$803,000 in accrued interest, of which $136,000 was a net increase in the amount accrued in 2017.terest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company settled the 2009 tax examination with federal tax authorities and settled the 2012, 2013 and 2014 tax examination with New York tax authorities. The Company is subject to U.S. federal and certain state tax examinations for certain years after 20102019, and is subject to California tax examinations for years after 2005.2018. The material foreign jurisdictions whereIRS and taxing authorities can also audit the Company is subject to potential examinations by tax authorities areNOL carryforwards acquired through the France, Germany, Spain and United Kingdom for tax years after 2009.MTE acquisition, which were generated starting in 2008.
Although the timing of any initiation, resolution and/or closure of any audits is highly uncertain, it is reasonably possible that the balance of the gross unrecognized tax benefits related to the method of computing income taxes in certain jurisdictions and losses reported on certain income tax returns could significantly change in the next 12 months. These changes may occur through settlement with the taxing authorities or the expiration of the statute of limitations on the returns filed. The Company is unable to estimate thea range of possible adjustments to the balance of the gross unrecognized tax benefits.
Note 6:8: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated balances of other comprehensive loss (in thousands):
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Beginning balance | $ | (3,787 | ) | $ | (3,908 | ) | $ | (2,602 | ) | ||
| Other comprehensive income (loss) due to foreign currency translation, net of tax | 190 | 121 | (1,306 | ) | |||||||
| Ending balance | $ | (3,597 | ) | $ | (3,787 | ) | $ | (3,908 | ) | ||
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Beginning balance | $ | (4,905) | $ | (3,793) | |||||||
| Other comprehensive income (loss) due to foreign currency translation | 298 | (1,112) | |||||||||
| Ending balance | $ | (4,607) | $ | (4,905) | |||||||
There were no amounts reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2017, 20162023 and 2015.2022. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.(loss).
Note 7:9: Employee Benefit Plan
The Company maintains a 401(k) Profit Sharing Plan & Trust (the “401(k) Plan”) for its employees in the United States. The 401(k) Plan allows employees of the Company to contribute up to 80% of their eligible compensation, subject to certain limitations. Since 2006, the Company matcheshas matched employee contributions up to $1,500$1,500 per year. Employee contributions are fully vested upon contribution, whereas the Company’s matching contributions are fully vestedvest after the first year of service. The Company also has various defined contribution plans for its international employees. The Company’s contributions to these benefit plans were approximately $2.0 million, $1.9 million673,000 and $2.1 million$689,000 for the years ended December 31, 2017, 20162023 and 2015,2022, respectively.
Note 8:10: Stock-Based CompensationCompensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant, usingemploying an option-pricing model. The value of the portion of the award that isawards expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s consolidated statements of income.operations.
On May 29, 2020, the shareholders of the Company approved certain amendments to the Bartel Option Agreements, which increased and repriced all outstanding, unexercised options granted to Mr. Holger Bartel (the “Option Agreement Amendments”). Pursuant to the Option Agreement Amendments and subject to shareholder approval, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the Option Agreement Amendments, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49. Additionally, the Option Agreement Amendments made the following increases: (a) 400,000 additional options to purchase the Company’s common stock pursuant to the 2015 Option Agreement, (b) 150,000 additional options to purchase the Company’s common stock pursuant to the 2017 Option Agreement, and (c) 400,000 additional options to purchase the Company’s common stock pursuant to the 2019 Option Agreement, which resulted in a total of 1,900,000 options granted to Mr. Bartel pursuant to the Option Agreement Amendments. Mr. Bartel’s amended options pursuant to the 2015 Option Agreement and the 2017 Option Agreement were fully vested upon the execution of the applicable Option Agreement Amendment. Therefore, stock-based compensation related to these options was fully expensed in the second quarter of 2020. In January 2012,2021, 800,000 options granted pursuant to the 2015 Option Agreement, 300,000 options granted pursuant to the 2017 Option Agreement and 260,000 options granted pursuant to the 2019 Option Agreement were exercised by Mr. Bartel, 681,902 shares of common stock were issued as the result of a cashless exercise or net settlement with respect to the option exercise price or taxes which were approved by Travelzoo's Board of Directors. As of December 31, 2021, stock-based compensation related to the 2019 Option Agreement and applicable Option Agreement Amendment was fully expensed. Mr. Bartel exercised the remaining 540,000 options granted pursuant to the 2019 Option Agreement in 2022. The Company received aggregate cash proceeds of $1.9 million.
In September 2019, pursuant to executed Option Agreements, the Company granted certain executivessix employees stock options to purchase 50,000 shares of common stock each (300,000 in the aggregate) with an exercise price of $10.79, of which 75,000 options vest and become exercisable annually starting on September 5, 2020 and ending on December 31, 2023. The options expire in September 2024. On May 29, 2020, the shareholders of the Company approved the grants, as well as certain amendments to the Option Agreements, which increased and repriced all outstanding, unexercised options granted to such employees. Pursuant to the applicable amendments, the exercise price for the options was repriced to the official NASDAQ closing share price on March 30, 2020 (the date of execution of the amendments to the Option Agreements, which immediately followed the date of approval of the grants from the Board of Directors of the Company), which was $3.49, the option grants were each increased to 100,000 each, resulting in 300,000 additional options in the aggregate. In 2020, 100,000 unvested options were forfeited upon an employee's departure, 75,000 options were exercised and 54,258 shares of common stock were issued as the result of a cashless exercise which were approved by Travelzoo’s Board of Directors. In 2021, 125,000 unvested options were forfeited upon employees’ departure, 150,000 options were exercised and 88,917 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. No option was exercised in 2022. In 2023, 50,000 options were exercised and 18,098 shares of common stock were issued as the result of the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. As of December 31, 2023, stock-based compensation related to these Option Agreements and applicable Option Agreement Amendments were fully expensed.
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On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 800,000 shares of common stock to Mr. Ralph Bartel, Chairman of the Board of Directors of the Company at the time, with an exercise price of $3.49 and quarterly vesting beginning June 30, 2020 and ending on March 31, 2022. The options expire in March 2025. This grant was approved at the 2020 Annual Meeting of the shareholders. In 2021, 600,000 options were exercised and 390,809 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. In 2023, 200,000 options were exercised and 121,307 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. As of December 31, 2022, stock-based compensation related to this grant was fully expensed.
On May 29, 2020, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 200,000 shares of common stock to two key employees, with an exercise price of $3.49 with annual vesting starting March 30, 2021 and ending on March 31, 2024. The options expire in March 2025. In 2021, 50,000 options were exercised and 24,474 shares of common stock were issued as the result of cashless exercises which were approved by Travelzoo’s Board of Directors. In 2022, 50,000 unvested options were forfeited upon one employee's departure, 25,000 options were exercised and 4,676 shares of common stock were issued as the result of cashless exercise or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. In 2023, 50,000 options were exercised and 16,619 shares of common stock were issued as the result of the cashless exercise which were approved by Travelzoo’s Board of Directors. As of December 31, 2023, there was approximately $25,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 0.3 years.
On June 1, 2021, pursuant to an executed Option Agreement, the shareholders of the Company approved the grant of stock options to purchase 50,000 shares of common stock to one employee, with an exercise price of $9.44, with annual vesting starting January 1, 2022 and ending on January 1, 2025. The options expire in January 2026. As of December 31, 2023, there was approximately $144,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 1.0 year.
In March 2022, pursuant to an executed Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 600,000 shares of common stock of the Company, with an exercise price of $8.14 and vesting 25% every six months over two years beginning on June 30, 2022 and ending on December 31, 2023. The options expire in March 2027. This grant was approved at the 2022 Annual Meeting of the shareholders. As of December 31, 2023, stock-based compensation related to this grant was fully expensed.
In June 2022, the Company granted an employee options to purchase 100,000 shares of common stock with an exercise price of $28.98,$6.78 and quarterly vesting beginning on September 30, 2022 and ending on June 30, 2025 with vesting based on both time-based service condition and also performance conditions. However, if the performance targets are not met as of the first date on which 25,000 options vest and become exercisable annually starting on January 23, 2013.the time condition is met, the time condition may be extended by one quarter up to three times. The options expire in JanuaryJune 2027. The Company did not recognize stock-based compensation expense for this grant as the performance targets were not achieved and thus no shares were vested in 2022. During 2014, 25,000 options were canceled and 25,000 options were forfeited upon the departure of an executive. As of December 31, 2017, 50,0002023, there was approximately $239,000 of the options were vested and outstanding.unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 1.5 years.
In September 2015,March 2023, the Company granted an executive stockits General Counsel and Head of Global Functions, Christina Sindoni Ciocca, options to purchase 400,000200,000 shares of common stock of the Company, with an exercise price of $8.07, of which 50,000 options became exercisable quarterly starting March 31, 2016. The options expire in September 2025. As of$4.96 and vesting 12.5% every six months over four years beginning on June 30, 2023 and ending on December 31, 2017, 400,000 options were vested and outstanding.
The Company recorded $1.0$1.6 million $933,000 and $401,000 $1.8 million of stock-based compensation in general and administrative expenses for fiscalthe years 2017, 2016ended December 31, 2023 and 2015, 2022, respectively.
The Company utilizedutilizes the Black-Scholes option pricing model to value the stock options, granted in 2016, 2015 and 2012. The Company usedwith an expected life as defined under the simplified method, which is using an average of the contractual term and vesting period of the stock options. Theoptions, and risk-free interest rate used for the award isrates based on the U.S. Treasury yield curve in effect at the time of grant. The Company accounted for forfeitures as they occur. The historicalHistorical volatility wasis calculated based upon implied volatility of the Company's historical stock prices. The Company accounts for forfeitures as they occur.
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The fair value of 2017, 2016stock options granted in 2023 and 2015 stock options2022 was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:
| 2023 | 2022 | ||||||||||
| Weighted-average fair value of options granted per share | $ | 2.78 | $ | 3.00 | |||||||
| Historical volatility | 75 | % | 77 | % | |||||||
| Risk-free interest rate | 4.40 | % | 2.85 | % | |||||||
| Dividend yield | — | — | |||||||||
| Expected life in years | 3.6 | 3.2 | |||||||||
| 2017 | 2016 | 2015 | |||||||||
| Weighted-average fair value of options granted per share | $ | 3.11 | $ | 4.73 | $ | 4.42 | |||||
| Historical volatility | 46 | % | 58 | % | 59 | % | |||||
| Risk-free interest rate | 2.06 | % | 1.38 | % | 1.73 | % | |||||
| Dividend yield | — | — | — | ||||||||
| Expected life in years | 5.65 | 6.25 | 5.75 | ||||||||
As of December 31, 2017,2023, there was approximately $1.1 million$824,000 of unrecognized stock-based compensation expense related to outstanding 2017 stock options, expected to be recognized over 2 year, and approximately $258,000 of unrecognized stock-based compensation expense relating to outstanding 2016 stock options. This amount is expected to be recognized over 2.2 years. There was no unrecognized stock-based compensation expense relating to 2015 and 2012 stock options grants.0.8 years.
Option activities during the years ended December 31, 2015, 2016,2021 and 20172023 were as follows:
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||
| (In thousands) | ||||||||||||
| Outstanding at January 1, 2015 | 425,000 | $ | 19.20 | 5.79 years | $ | — | ||||||
| Option Granted | 400,000 | $ | 8.07 | |||||||||
| Options forfeited and canceled | (50,000 | ) | $ | 29.58 | ||||||||
| Outstanding at December 31, 2015 | 775,000 | $ | 12.78 | 5.53 years | $ | 120 | ||||||
| Option Granted | 150,000 | $ | 8.55 | |||||||||
| Options forfeited and canceled | (325,000 | ) | $ | 16.09 | ||||||||
| Outstanding at December 31, 2016 | 600,000 | $ | 9.93 | 8.55 years | $ | — | ||||||
| Option Granted | 400,000 | $ | 6.95 | |||||||||
| Options forfeited and canceled | (50,000 | ) | $ | 8.55 | ||||||||
| Outstanding at December 31, 2017 | 950,000 | $ | 8.75 | 8.48 years | $ | — | ||||||
| Exercisable and fully vested at December 31, 2017 | 475,000 | $ | 10.30 | 7.38 years | $ | — | ||||||
| Outstanding at December 31, 2017 and expected to vest thereafter | 475,000 | $ | 7.20 | 9.58 years | $ | — | ||||||
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Outstanding at December 31, 2021 | 1,090,000 | $ | 3.76 | 2.92 years | |||||||||||||||||||
| Options Granted | 700,000 | 7.95 | |||||||||||||||||||||
| Exercised options | (565,000) | 3.49 | |||||||||||||||||||||
| Options forfeited and canceled | (50,000) | 3.49 | |||||||||||||||||||||
| Outstanding at December 31, 2022 | 1,175,000 | $ | 6.40 | 3.38 years | |||||||||||||||||||
| Options Granted | 200,000 | $ | 4.96 | ||||||||||||||||||||
| Exercised options | (325,000) | $ | 3.49 | ||||||||||||||||||||
| Outstanding at December 31, 2023 | 1,050,000 | $ | 7.02 | 3.11 years | $ | 2,632 | |||||||||||||||||
| Exercisable and fully vested at December 31, 2023 | 783,332 | $ | 7.48 | 2.97 years | $ | 1,610 | |||||||||||||||||
| Outstanding at December 31, 2023 and expected to vest thereafter | 266,668 | $ | 5.70 | 3.51 years | $ | 1,022 | |||||||||||||||||
The aggregate intrinsic valuevalues in the table above representsrepresent the total pre-tax intrinsic valuevalues (the difference between the Company’s closing stock price on the last trading day of yearsthe year ended December 31, 2017, 2016 and 20152023 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders exercised their options on December 31, 2017, 2016, and 2015. This amount changes2023. These amounts change based on the fair value of the Company’s stock. The Company’s policy is to issue shares from the authorized shares to fulfill stock option exercises.
Outstanding options at December 31, 20172023 were as follows:
| Exercise Price | Options Outstanding | Options Outstanding Weighted-Average Remaining Contractual Life | Weighted-Average Exercise Price | Options Outstanding and Exercisable | Options Exercisable Weighted-Average Remaining Contractual Life | |||||||||||||||||||||||||||
| $ | 3.49 | 100,000 | 0.82 years | $ | 3.49 | 75,000 | 0.68 years | |||||||||||||||||||||||||
| $ | 4.96 | 200,000 | 4.19 years | $ | 4.96 | 50,000 | 4.19 years | |||||||||||||||||||||||||
| $ | 6.78 | 100,000 | 3.42 years | $ | 6.78 | 33,332 | 3.42 years | |||||||||||||||||||||||||
| $ | 8.14 | 600,000 | 3.17 years | $ | 8.14 | 600,000 | 3.17 years | |||||||||||||||||||||||||
| $ | 9.44 | 50,000 | 2.01 years | $ | 9.44 | 25,000 | 2.01 years | |||||||||||||||||||||||||
| Exercise Price | Shares Outstanding | Options Outstanding Weighted-Average Remaining Contractual Life | Weighted-Average Exercise Price | Shares Outstanding and Exercisable | Options Exercisable Weighted-Average Remaining Contractual Life | |||||||||||
| $ | 28.98 | 50,000 | 4.07 years | $ | 28.98 | 50,000 | 4.07 years | |||||||||
| $ | 8.07 | 400,000 | 7.75 years | $ | 8.07 | 400,000 | 7.75 years | |||||||||
| $ | 8.55 | 100,000 | 8.19 years | $ | 8.55 | 25,000 | 8.19 years | |||||||||
| $ | 6.95 | 400,000 | 9.84 years | $ | 6.95 | — | 9.84 years | |||||||||
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Note 9:11: Stock Repurchase Program
The Company's stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and forwith capital allocation purposes.allocation. Management is allowed discretion in the execution of the repurchase programprograms, based upon market conditions and consideration of capital allocation.
In 2012 and 2014,June 2022, the Company announced a stock repurchase program authorizing to repurchase the Company’s outstanding common stockthat its Board of up to 1,000,000 shares and 500,000 shares, respectively. There were 268,000 shares remaining to be repurchased under the programs as of December 31, 2014. During the year ended December 31, 2015, the Company repurchased 212,000 shares of common stock for an aggregate purchase price of $1.7 million, which were recorded as part of treasury stock as of December 31, 2015. There were 56,000 shares remaining to be repurchased under this program as of December 31, 2015.
Note 10:12: Segment Reporting and Significant Customer Information
The Company managesdetermines its business geographically and has threereportable segments based upon the chief operating decision maker’s management of the business. During 2023, the Company had four reportable operating segments: Asia Pacific,Travelzoo North America, Travelzoo Europe, Jack’s Flight Club and New Initiatives. Travelzoo North America. Asia PacificAmerica consists of the Company'sCompany’s operations in Australia, China, Hong Kong, Japan, Taiwan,the U.S. and Southeast Asia.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 activities in certain Asia Pacific territories, the Travelzoo META subscription service and MTE.
In 2022, the Company managed its business and operated in three reportable segments, including Travelzoo North America, consistsTravelzoo Europe and Jack’s Flight Club. Following the acquisition of MTE in December 2022 and the development and announcement of Travelzoo META, the Company’s chief operating decision maker evaluated New Initiatives as an additional reportable segment beginning in 2023. Accordingly, segment operating results reported below for the year ended December 31, 2022 have been restated in accordance with GAAP under the FASB’s Segment Reporting (Topic 280). Specifically, the 2022 Travelzoo North America segment financial information was adjusted to exclude results related to the 2022 New Initiatives segment, which is now presented separately.
For the year ended December 31, 2023, Travelzoo North America operations in Canadacomprised 66% of revenues, Travelzoo Europe operations comprised 29% of revenues and the U.S.Jack's Flight Club comprised 5% of revenues.
Management relies on an internal management reporting process that provides revenue and segment operating incomeprofit (loss) for making financial decisions and allocating resources. Management believes that segment revenues and operating incomeprofit (loss) are appropriate measures of evaluating the operational performance of the Company’s segments. As noted above, the reported financial information for 2022 has been reclassified to conform to the current segment presentation.
The following is a summary of operating results and assets (in thousands) by business segment:segment (in thousands):
| Year Ended December 31, 2023 | Travelzoo North America | Travelzoo Europe | Jack's Flight Club | New Initiatives | Consolidated | ||||||||||||||||||||||||
| Revenues from unaffiliated customers | $ | 54,837 | $ | 25,291 | $ | 4,145 | $ | 204 | $ | 84,477 | |||||||||||||||||||
| Intersegment revenues | 1,243 | (1,270) | 27 | — | — | ||||||||||||||||||||||||
| Total net revenues | $ | 56,080 | $ | 24,021 | $ | 4,172 | $ | 204 | $ | 84,477 | |||||||||||||||||||
| Operating income (loss) | $ | 15,254 | $ | 1,317 | $ | (23) | $ | (976) | $ | 15,572 | |||||||||||||||||||
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| Year Ended December 31, 2017 | Asia Pacific | Europe | North America | Other | Consolidated | ||||||||||||||
| Revenues from unaffiliated customers | $ | 7,553 | $ | 34,034 | $ | 64,937 | $ | — | $ | 106,524 | |||||||||
| Intersegment revenues | (34 | ) | (353 | ) | 387 | — | — | ||||||||||||
| Total net revenues | $ | 7,519 | $ | 33,681 | $ | 65,324 | — | $ | 106,524 | ||||||||||
| Operating income (loss) | $ | (5,967 | ) | $ | 2,290 | $ | 8,222 | $ | — | $ | 4,545 | ||||||||
| Year Ended December 31, 2022 | Travelzoo North America | Travelzoo Europe | Jack's Flight Club | New Initiatives | Consolidated | ||||||||||||||||||||||||
| Revenues from unaffiliated customers | $ | 47,029 | $ | 20,068 | $ | 3,477 | $ | 25 | $ | 70,599 | |||||||||||||||||||
| Intersegment revenues | 613 | (613) | — | — | — | ||||||||||||||||||||||||
| Total net revenues | $ | 47,642 | $ | 19,455 | $ | 3,477 | $ | 25 | $ | 70,599 | |||||||||||||||||||
| Operating income (loss) | $ | 10,348 | $ | (1,803) | $ | — | $ | (988) | $ | 7,557 | |||||||||||||||||||
| As of December 31, 2023 | Travelzoo North America | Travelzoo Europe | Jack's Flight Club | New Initiatives | Elimination | Consolidated | |||||||||||||||||||||||||||||
| Long-lived assets | $ | 152 | $ | 106 | $ | — | $ | 320 | $ | — | $ | 578 | |||||||||||||||||||||||
| Total assets | $ | 96,865 | $ | 22,655 | $ | 19,472 | $ | 3,570 | $ | (87,181) | $ | 55,381 | |||||||||||||||||||||||
| As of December 31, 2022 | Travelzoo North America | Travelzoo Europe | Jack's Flight Club | New Initiatives | Elimination | Consolidated | |||||||||||||||||||||||||||||
| Long-lived assets | $ | 357 | $ | 86 | $ | — | $ | 214 | $ | — | $ | 657 | |||||||||||||||||||||||
| Total assets | $ | 97,960 | $ | 19,253 | $ | 18,737 | $ | 336 | $ | (69,023) | $ | 67,263 | |||||||||||||||||||||||
| Year Ended December 31, 2016 | Asia Pacific | Europe | North America | Other (a) | Consolidated | ||||||||||||||
| Revenues from unaffiliated customers | $ | 9,625 | $ | 37,502 | $ | 67,136 | $ | — | $ | 114,263 | |||||||||
| Intersegment revenues | 73 | (595 | ) | 522 | — | — | |||||||||||||
| Total net revenues | $ | 9,698 | $ | 36,907 | $ | 67,658 | — | $ | 114,263 | ||||||||||
| Operating income (loss) | $ | (3,890 | ) | $ | 5,604 | $ | 8,472 | $ | — | $ | 10,186 | ||||||||
| Year Ended December 31, 2015 | Asia Pacific | Europe | North America | Other (a) | Consolidated | ||||||||||||||
| Revenues from unaffiliated customers | $ | 10,661 | $ | 39,867 | $ | 73,433 | $ | — | $ | 123,961 | |||||||||
| Intersegment revenues | (12 | ) | (131 | ) | 143 | — | — | ||||||||||||
| Total net revenues | $ | 10,649 | $ | 39,736 | $ | 73,576 | — | $ | 123,961 | ||||||||||
| Operating income (loss) | $ | (2,469 | ) | $ | 2,472 | $ | 3,817 | $ | — | $ | 3,820 | ||||||||
| As of December 31, 2017 | Asia Pacific | Europe | North America | Elimination | Consolidated | ||||||||||||||
| Long-lived assets | $ | 140 | $ | 496 | $ | 4,285 | $ | — | $ | 4,921 | |||||||||
| Total assets | $ | 3,697 | $ | 54,593 | $ | 60,246 | $ | (72,864 | ) | $ | 45,672 | ||||||||
| As of December 31, 2016 | Asia Pacific | Europe | North America | Elimination | Consolidated | ||||||||||||||
| Long-lived assets | $ | 209 | $ | 763 | $ | 5,186 | $ | — | $ | 6,158 | |||||||||
| Total assets | $ | 5,295 | $ | 49,125 | $ | 65,961 | $ | (66,851 | ) | $ | 53,530 | ||||||||
For the years ended December 31, 2017, 20162023 and 2015,2022, the Company did not have any customers that accounted for 10% or more of revenue. As of December 31, 2017,2023 and 2022, the Company did not have any customers that accounted for 10% or more of accounts receivable. As of December 31, 2016, the Company had one customer that accounted for 16% of accounts receivable. Accounts receivable representing 10% or more of total accounts receivable was related to an advertising technology company that assists us with our Search product traffic monetization by using a traffic auction platform.
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue includes travel publications (Top(such as Top 20 Website, Newsflash,newsletter, Standalone newsletters, Travelzoo Network)website, Getaway Travelzoo Network), Getaways vouchers, hotel platform and hotel platform.vacation packages. Local revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings). offers.
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||||||||||||
| Travelzoo North America | |||||||||||||||||||||||||||||||||
| Travel | |||||||||||||||||||||||||||||||||
| Travel | |||||||||||||||||||||||||||||||||
| Travel | $ | 6,992 | $ | 8,845 | $ | 9,355 | |||||||||||||||||||||||||||
| Local | 527 | 853 | 1,294 | ||||||||||||||||||||||||||||||
| Total Asia Pacific revenues | $ | 7,519 | $ | 9,698 | $ | 10,649 | |||||||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||||||
| Total Travelzoo North America revenues | |||||||||||||||||||||||||||||||||
| Travelzoo Europe | |||||||||||||||||||||||||||||||||
| Travel | |||||||||||||||||||||||||||||||||
| Travel | |||||||||||||||||||||||||||||||||
| Travel | $ | 29,180 | $ | 31,087 | $ | 33,603 | |||||||||||||||||||||||||||
| Local | 4,501 | 5,820 | 6,133 | ||||||||||||||||||||||||||||||
| Total Europe revenues | $ | 33,681 | $ | 36,907 | $ | 39,736 | |||||||||||||||||||||||||||
| North America | |||||||||||||||||||||||||||||||||
| Total Travelzoo Europe revenues | |||||||||||||||||||||||||||||||||
| Jack's Flight Club | |||||||||||||||||||||||||||||||||
| New Initiatives | |||||||||||||||||||||||||||||||||
| Consolidated | |||||||||||||||||||||||||||||||||
| Travel | |||||||||||||||||||||||||||||||||
| Travel | |||||||||||||||||||||||||||||||||
| Travel | $ | 53,880 | $ | 54,248 | $ | 56,156 | |||||||||||||||||||||||||||
| Local | 11,444 | 13,410 | 17,420 | ||||||||||||||||||||||||||||||
| Total North America revenues | $ | 65,324 | $ | 67,658 | $ | 73,576 | |||||||||||||||||||||||||||
| Consolidated | |||||||||||||||||||||||||||||||||
| Travel | $ | 90,052 | $ | 94,180 | $ | 99,114 | |||||||||||||||||||||||||||
| Local | 16,472 | 20,083 | 24,847 | ||||||||||||||||||||||||||||||
| Jack's Flight Club | |||||||||||||||||||||||||||||||||
| New Initiatives | |||||||||||||||||||||||||||||||||
| Total revenues | $ | 106,524 | $ | 114,263 | $ | 123,961 | |||||||||||||||||||||||||||
Revenue by geography is based on the billing address of the advertiser. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned.
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The following table sets forth revenuerevenues for individual countries that werecomprised 10% or more of total revenue (in thousands):
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Revenue | |||||||||||
| United States | $ | 59,812 | $ | 62,456 | $ | 68,441 | |||||
| United Kingdom | 19,113 | 22,263 | 25,865 | ||||||||
| Germany | 12,226 | 12,576 | 12,534 | ||||||||
| Rest of the world | 15,373 | 16,968 | 17,121 | ||||||||
| Total revenues | $ | 106,524 | $ | 114,263 | $ | 123,961 | |||||
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenue | |||||||||||
| United States | $ | 50,891 | $ | 43,151 | |||||||
| United Kingdom | 19,486 | 15,795 | |||||||||
| Rest of the world | 14,100 | 11,653 | |||||||||
| Total revenues | $ | 84,477 | $ | 70,599 | |||||||
The following table sets forth long lived assetlong-lived assets by geographic area (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| United States | $ | 115 | $ | 274 | |||||||
| Rest of the world | 463 | 383 | |||||||||
| Total long-lived assets | $ | 578 | $ | 657 | |||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| United States | $ | 3,893 | $ | 4,755 | |||
| Rest of the world | 1,028 | 1,403 | |||||
| Total long lived assets | $ | 4,921 | $ | 6,158 | |||
Note 11: Discontinued Operations13: Related Party Transactions
Ralph Bartel, who founded Travelzoo, is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro. Azzurro is the Company’s largest shareholder, and as of December 31, 2023, holds approximately 40.2% of the Company's outstanding shares. Holger Bartel, the Company's Global CEO, is Ralph Bartel's brother and separately holds 3.8% of the Company's outstanding shares as of December 31, 2023.
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. As of December 31, 2022, Azzurro and Ralph Bartel owned approximately 50.3% of the Company’s outstanding shares. See Note 3–Acquisitions in the consolidated financial statements for further information.
Service Agreement with Metaverse Travel Experiences, Inc.
On March 1, 2022, Travelzoo (Asia) Limited, a Hong Kong limited company and wholly-owned subsidiary of the Company (“Travelzoo Asia”), entered in a four year Service Agreement (the “Service Agreement”) with a wholly-owned subsidiary of Azzurro Capital Inc., MTE, formerly Azzurro Brands Inc. Azzurro Capital Inc. is the Company’s largest shareholder. The Service Agreement was reviewed and unanimously authorized and approved by the Audit Committee of the Board of Directors, which is comprised solely of independent and disinterested directors. Pursuant to the Service Agreement, MTE will source curated Metaverse experiences in exchange for $25,000 per month, payable in advance each quarter. $250,000 was paid to MTE from Travelzoo (Asia) Limited in 2022 for Metaverse experiences which was expensed as Sales and marketing expenses in 2022. MTE is also entitled to receive commission equal to 25% of any subscription revenue generated by the Company. The Service Agreement is for a term of four (4) years but may be terminated for convenience after two (2) years. No commission was paid to MTE in 2022. Upon consummation of the Stock Purchase Agreement between the Company and Azzurro Capital Inc. as described above, the Service Agreement was terminated.
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License Agreement with Azzurro Brands Inc. and subsequent Asset Purchase Agreement
On March 30, 2017,12, 2021, the Company, decided to discontinue its Search products, consistingwith the approval of Fly.comthe Audit Committee of the Board of Directors, which consists solely of independent directors, entered into a License Agreement (the “License Agreement”) with Azzurro Brands Inc., a New York corporation (“Azzurro Brands”) and SuperSearch products. This decision supportswholly-owned subsidiary of Azzurro, the Company’s strategylargest shareholder. Pursuant to focus on its global Travelzoo® brand. the terms of the License Agreement, the Company was granted the exclusive right and license to use a database of 2.2 million non-duplicated subscribers that Azzurro Brands purchased from a competitor of Travelzoo. The License Agreement requires that the Company pay a license fee of $413,000 per quarter with an initial payment of $894,000 due upon execution, which covers the period from execution until September 30, 2021. The License Agreement has a term of one (1) year with an automatic renewal, terminable by either party with sixty (60) days’ written notice before the end of the term. The License Agreement contains customary representations and warranties. The payment of $894,000 was made in the first quarter of 2021 and recorded in sales and marketing expenses in 2021. The second payment of $701,000 was made in the second quarter of 2021 which covers the period from October 2021 through March 2022 and recorded in sales and marketing expenses and prepaid expenses and other. Travelzoo renewed the License Agreement in January 2022 for a license fee of $413,000 per quarter and made the payment of $800,000 to cover the period from April 2022 to September 2022 in the fourth quarter of 2021 and was recorded in Prepaid expenses-Related party, which totaled $1.15 million as of December 31, 2021.
On March 30, 2017,17, 2022, the Company, ceased operationsas Buyer, entered into an Asset Purchase Agreement (the “APA”) with Azzurro Brands Inc. to purchase the database previously utilized by Travelzoo in accordance with the License Agreement. The purchase price for the transaction was $1.75 million, with $600,000 paid in cash upon closing in March 2022 and the remaining $1.15 million payable in the form of SuperSearch and on March 31, 2017,a credit with Seller relating to prepaid license fees, under the License Agreement. The remaining commitment of the Company soldunder the Fly.com domain name, which had no net book value,License Agreement for the then-current remaining term (equal to $825,000) was eliminated.
Stock Option Agreement
In March 2022, the Compensation Committee of the Board of Directors granted Holger Bartel 600,000 stock options that vest through December 31, 2023. This grant was approved by the stockholders of the Company at the 2022 Annual Meeting of Stockholders. Holger Bartel is the brother of Ralph Bartel and is our Global Chief Executive Officer. See Note 10 above for further information.
Profits from Sale and Purchase of Travelzoo Common Stock within Six Month Period
Holger Bartel completed sales and purchases of 25,000 shares of Travelzoo common stock within a six month period ended July 29, 2022. Per Section 16(b) of Securities and Exchange Act, he agreed to immediately remit to the Company $46,000 in profits gained from these transactions in 2022.
On May 23, 2023, Travelzoo was named as a nominal defendant in a complaint for recovery of short swing profits filed in the Southern District of New York under Section 16(b) of the Securities Exchange Act, by Dennis J. Donoghue and Mark Rubenstein, against Ralph Bartel, the Ralph Bartel 2005 Trust and Azzurro Capital Inc. This case is ongoing but as Travelzoo is a nominal defendant, it did not accrue any expense as of December 31, 2023.
Note 14: Leases
The Company has operating leases for real estate and certain equipment. The Company leases office space in Canada, Germany, Spain, the U.K. and the U.S. under operating leases. Our leases have remaining lease terms ranging from less than one year to up to seven years. Certain leases include one or more options to renew. In addition, we sublease certain real estate to a third party. There were no other assets or liabilities transferredAll of our leases qualify as part this transaction.operating leases.
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating lease cost | $ | 2,349 | $ | 2,316 | |||||||
| Short-term lease cost | 149 | — | |||||||||
| Variable lease cost | 580 | 683 | |||||||||
| Sublease income | (271) | (353) | |||||||||
| Total lease cost | $ | 2,807 | $ | 2,646 | |||||||
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Cash payments against the operating lease liabilities totaled $3.2 million for each of the years ended December 31, 2023 and 2022. ROU assets obtained in thousands, is includedexchange for lease obligations was $602,000 and $1.7 million for the year ended December 31, 2023 and 2022, respectively.
The following table summarizes the presentation in the following table:our consolidated balance sheets of our operating leases (in thousands):
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Assets: | ||||||||||||||
| Operating lease right-of-use assets | $ | 6,015 | $ | 7,440 | ||||||||||
| Liabilities: | ||||||||||||||
| Operating lease liabilities | $ | 2,530 | $ | 2,972 | ||||||||||
| Long-term operating lease liabilities | 6,717 | 8,326 | ||||||||||||
| Total operating lease liabilities | $ | 9,247 | $ | 11,298 | ||||||||||
| Weighted average remaining lease term (years) | 5.26 | 5.87 | ||||||||||||
| Weighted average discount rate | 4.3 | % | 4.3 | % | ||||||||||
Maturities of remaining lease liabilities at December 31, 2023 were as follows (in thousands):
| Years ending December 31, | |||||
| 2024 | $ | 2,701 | |||
| 2025 | 1,900 | ||||
| 2026 | 1,396 | ||||
| 2027 | 1,350 | ||||
| 2028 | 1,350 | ||||
| Thereafter | 1,575 | ||||
| Total lease payments | 10,272 | ||||
| Less interest | (1,025) | ||||
| Present value of operating lease liabilities | $ | 9,247 | |||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Revenues from Search | $ | 2,088 | $ | 14,289 | $ | 17,755 | |||||
| Cost of revenues | (101 | ) | (458 | ) | (676 | ) | |||||
| Gross profit | 1,987 | 13,831 | 17,079 | ||||||||
| Total operating expenses | (1,817 | ) | (12,949 | ) | (13,753 | ) | |||||
| Gain on sale of Fly.com domain name | 2,890 | — | — | ||||||||
| Income from discontinued operations before income taxes | 3,060 | 882 | 3,326 | ||||||||
| Income tax expense | 1,122 | 258 | 985 | ||||||||
| Income from discontinued operations, net of income taxes | $ | 1,938 | $ | 624 | $ | 2,341 | |||||
Note 12: Related Party Transactions15: Discontinued Operations
On August 20, 2015,March 10, 2020, Travelzoo acquiredissued a press release announcing that it will exit its loss-making business in Asia Pacific. The decision supports the Travelzoo Asia Pacific business (“Asia Pacific”), which includesCompany's strategy to focus on value creation for shareholders by focusing on growing the Travelzoo businesses in Australia, China, Hong Kong, Japan, Taiwan,North America and Southeast Asia. This business was independently operated by Azzurro Capital Inc. ("Azzurro") under a licensing agreement with Travelzoo The Company held an option right to acquire Asia Pacific at fair market value as determined by a third party valuation expert. Under the terms of the definitive acquisition agreement, Travelzoo (Europe) Limited, a United Kingdom subsidiary of the Company, was authorized by the Company to exercise the option right to acquire Asia Pacific for a fair market transaction value of $22.6 million, subject to a
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| Year Ended December 31, | |||||
| 2015 | |||||
| Revenue | $ | 10,774 | |||
| Operating Loss | $ | (2,436 | ) | ||
| Net Loss | $ | (3,096 | ) | ||
| Other Comprehensive Income | $ | 305 | |||
| Basic and diluted earnings per share | $ | (0.21 | ) | ||
The Asia Pacific business ceased operations as of March 31, 2020, except for the Company's Japan and Singapore units, which were held for sale. The Company classified Asia Pacific as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. The following table provides a summary of amounts included in discontinued operations for the years ended December 31, 2023 and 2022 (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revenues | $ | — | $ | — | |||||||
| Cost of revenues | — | — | |||||||||
| Gross profit | — | — | |||||||||
| Operating expenses: | |||||||||||
| Sales and marketing | — | — | |||||||||
| Product development | — | — | |||||||||
| General and administrative | 12 | — | |||||||||
| Total operating expenses | 12 | — | |||||||||
| Loss from operations | (12) | — | |||||||||
| Other income (loss), net | 472 | (35) | |||||||||
| Income (loss) before income taxes | 460 | (35) | |||||||||
| Income tax expense | — | 24 | |||||||||
| Net income (loss) from discontinued operations | $ | 460 | $ | (59) | |||||||
On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan to Mr. Hajime Suzuki (the “Japan Buyer”) for consideration of 1 Japanese Yen. The Company recognized a pre-tax loss of$128,000. The parties also entered into a License Agreement, whereby Travelzoo Japan obtained rights to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5-year term, with an option to renew. An interest free loan was provided to the licensee for JPY 46.0 million (approximately $430,000), of which $133,000 was repaid in 2021 and the remaining repaid in 2023. The Company recognized royalties of $36,000 and $0 for its licensing arrangements from the licensee in Japan for the years ended December 31, 2023 and 2022.
On August 24, 2020, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Singapore, to an unaffiliated entity, Finest Hotels Pty Ltd d/b/a Travelzoo (“AUS Buyer”), which is fully owned by Mr. Julian Rembrandt, the Company's former General Manager of Southeast Asia and Australia for consideration of 1 Singapore Dollar. The parties also entered into a License Agreement, whereby the AUS Buyer obtained a license to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore and non-exclusively in China and Hong Kong for quarterly royalty payments based upon revenue over a 5-year term, with an option to renew. The non-exclusive license in China and Hong Kong was terminated by Travelzoo. The Company recognized royalties of $35,000 and $25,000 for its licensing arrangements from AUS Buyer for the years ended December 31, 2023 and 2022, respectively.
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The following table presents information related to the major classes of assets and liabilities have been combined with Travelzoo at their carrying valuesclassified as though the transaction occurred at the beginning of each period presented. At December 31, 2015, Asia Pacific netassets and liabilities total assets minus total liabilities, were $6.8 million.
| December 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Cash, cash equivalents and restricted cash | $ | 1 | $ | 10 | |||||||
| Prepaid expenses and other | — | 1 | |||||||||
| Total assets from discontinued operations | $ | 1 | $ | 11 | |||||||
| LIABILITIES | |||||||||||
| Accounts payable | $ | — | $ | 403 | |||||||
| Accrued expenses and other | — | 13 | |||||||||
| Income tax payable | 24 | 24 | |||||||||
| Deferred revenue | — | 12 | |||||||||
| Total liabilities from discontinued operations | $ | 24 | $ | 452 | |||||||
Net cash used in operating activities and investing activities for discontinued operations for the for the years ended December 31, 2015.2023 and 2022 are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net cash used in operating activities | $ | (9) | $ | (21) | |||||||
Note 16: Non-Controlling Interest
The Company’s consolidated financial statements include Jack's Flight Club, which the Company acquired the Asia Pacific business, which include certain customary seller indemnifications, through the acquisition of Travelzoo (Asia) Limited, including its wholly owned subsidiaries, and Travelzoo Japan KK. All significant intercompany accounts and transactions between Travelzoo and the acquired Asia Pacific entities have been eliminated for all periods presented.has operating control over but owns a 60% equity interest in.
| Non-controlling interest—January 1, 2022 | $ | 4,600 | |||
| Net loss attributable to non-controlling interest | (5) | ||||
| Non-controlling interest—December 31, 2022 | 4,595 | ||||
| Net loss attributable to non-controlling interest | 102 | ||||
| Non-controlling interest—December 31, 2023 | $ | 4,697 | |||
Note 17: Restatement of previously issued financial statements.
The Company restated its previously issued Consolidated Financial Statements as of and for the year ended December 31, 2015.2022. In January 2016, the full amount of the loan was paid off by Travelzoo (Europe) Limited.
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| Quarter Ended | |||||||||||||||||||||||||||||||
| Dec 31, 2017 | Sep 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | Dec 31, 2016 | Sep 30, 2016 | Jun 30, 2016 | Mar 31, 2016 | ||||||||||||||||||||||||
| Revenues | $ | 26,997 | $ | 24,687 | $ | 26,411 | 28,429 | $ | 26,814 | $ | 26,823 | $ | 29,798 | $ | 30,828 | ||||||||||||||||
| Cost of revenues | 3,462 | 3,018 | 3,222 | 3,207 | 3,263 | 3,270 | 3,471 | 3,851 | |||||||||||||||||||||||
| Gross profit | 23,535 | 21,669 | 23,189 | 25,222 | 23,551 | 23,553 | 26,327 | 26,977 | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||
| Sales and marketing | 13,746 | 13,973 | 14,213 | 15,356 | 13,369 | 14,075 | 15,455 | 15,530 | |||||||||||||||||||||||
| Product development | 2,208 | 2,315 | 2,344 | 2,357 | 2,077 | 2,230 | 2,001 | 2,788 | |||||||||||||||||||||||
| General and administrative | 6,502 | 5,363 | 5,246 | 5,447 | 6,077 | 5,373 | 5,434 | 5,813 | |||||||||||||||||||||||
| Total operating expenses | 22,456 | 21,651 | 21,803 | 23,160 | 21,523 | 21,678 | 22,890 | 24,131 | |||||||||||||||||||||||
| Income from continuing operations | 1,079 | 18 | 1,386 | 2,062 | 2,028 | 1,875 | 3,437 | 2,846 | |||||||||||||||||||||||
| Other income (loss), net | 62 | 86 | 18 | 7 | (480 | ) | 251 | (91 | ) | 133 | |||||||||||||||||||||
| Income from continuing operations before income taxes | 1,141 | 104 | 1,404 | 2,069 | 1,548 | 2,126 | 3,346 | 2,979 | |||||||||||||||||||||||
| Income tax expense | 466 | 680 | 771 | 1,209 | 542 | 748 | 1,548 | 1,154 | |||||||||||||||||||||||
| Income (loss) from continuing operations | 675 | (576 | ) | 633 | 860 | 1,006 | 1,378 | 1,798 | 1,825 | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | — | — | 54 | 1,884 | (63 | ) | 241 | 222 | 224 | ||||||||||||||||||||||
| Net income (loss) | $ | 675 | $ | (576 | ) | $ | 687 | $ | 2,744 | $ | 943 | $ | 1,619 | $ | 2,020 | $ | 2,049 | ||||||||||||||
| Income (loss) per share—basic: | |||||||||||||||||||||||||||||||
| Continuing operations | $ | 0.05 | $ | (0.05 | ) | $ | 0.05 | $ | 0.07 | $ | 0.07 | $ | 0.10 | $ | 0.13 | $ | 0.13 | ||||||||||||||
| Discontinued operations | — | — | — | 0.14 | — | 0.02 | 0.01 | 0.01 | |||||||||||||||||||||||
| Net income (loss) per share—basic | $ | 0.05 | $ | (0.05 | ) | $ | 0.05 | $ | 0.21 | $ | 0.07 | $ | 0.12 | $ | 0.14 | $ | 0.14 | ||||||||||||||
| Income (loss) per share—diluted: | |||||||||||||||||||||||||||||||
| Continuing operations | $ | 0.05 | $ | (0.05 | ) | $ | 0.05 | $ | 0.07 | $ | 0.07 | $ | 0.10 | $ | 0.13 | $ | 0.13 | ||||||||||||||
| Discontinued operations | — | — | — | 0.14 | — | 0.02 | 0.01 | 0.01 | |||||||||||||||||||||||
| Net (loss) income per share—diluted | $ | 0.05 | $ | (0.05 | ) | $ | 0.05 | $ | 0.21 | $ | 0.07 | $ | 0.12 | $ | 0.14 | $ | 0.14 | ||||||||||||||
The impacts from the restatement as of and for the year ended December 31, 2022 are as follows (in thousands):
| December 31, 2022 | |||||||||||||||||
| As Reported | Adjustments | As Restated | |||||||||||||||
| Non-controlling interest | $ | 4,595 | $ | (4,595) | $ | — | |||||||||||
| Stockholders’ equity: | |||||||||||||||||
| Total Travelzoo stockholders’ equity | 4,256 | — | 4,256 | ||||||||||||||
| Non-controlling interest | — | 4,595 | 4,595 | ||||||||||||||
| Total stockholders’ equity | $ | 4,256 | $ | 4,595 | $ | 8,851 | |||||||||||
Consolidated Statement of Stockholders’ Equity:
| December 31, 2022 | |||||||||||||||||
| As Reported | Adjustments | As Restated | |||||||||||||||
| Total Travelzoo stockholders’ equity | $ | 4,256 | $ | — | $ | 4,256 | |||||||||||
| Non-controlling interest | — | 4,595 | 4,595 | ||||||||||||||
| Total stockholders’ equity | $ | 4,256 | $ | 4,595 | $ | 8,851 | |||||||||||
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this Annual Report on Form 10-K an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer (CEO) and Principal Accounting Officer (PAO), of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our CEO and PAO concluded that certain of our disclosure controls and procedures were not effective as of December 31, 2023, related to financial reporting and disclosure of non-routine, non-recurring, unusual and complex transactions, as further described below.
However, after giving full consideration to the material weakness, management believes that our consolidated financial statements included in this Annual Report on Form 10-K have been prepared in accordance with US GAAP. Our CEO and PAO have certified that, based on such officer’s knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report.
Material Weakness
We have identified a material weakness in our internal control over financial reporting related to having sufficient resources for the accounting for certain non-routine, non-recurring, unusual or complex transactions within our financial statement closing and reporting process. Specifically, the Company did not have internal financial staff with sufficient specific expertise to ensure complete and timely financial reporting and disclosures related to technical and complex accounting transactions.
Remediation Plan
We have made progress towards remediation and continue to implement our remediation plan for the material weakness in internal control over financial reporting described above. Specifically, we realigned certain of our personnel (including recruiting for additional headcount in Finance), improved reporting processes, and designed and implemented new controls in preparation for the next non-routine, non-recurring, unusual or complex transaction. We will engage sufficient outside subject matter experts and specialists to ensure the complete and timely accounting and financial reporting for certain non-routine, unusual or complex transactions and technical matters, where appropriate. We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2017,2023, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017,2023, the end of our fiscal year. Management based its assessment on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2017 to provide reasonable assurance regarding2023 for the reliabilityreasons discussed above.
This Annual Report on Form 10-K does not include an attestation report of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.
/s/ HOLGER BARTEL
Holger Bartel
Global Chief Executive Officer
/s/ GLEN CEREMONYLIJUN QI
March 15, 201822, 2024
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated by reference to Travelzoo’s Definitivedefinitive Proxy Statement for the 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of Travelzoo’s fiscal year ended December 31, 20172023 and is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding executive compensation and compensation committee interlocks is incorporated by reference to the information in the definitive Proxy Statement relating to our 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2017,2023, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference to the information in the definitive Proxy Statement relating to our 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2017,2023, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence is incorporated by reference to the information set forth in the definitive Proxy Statement relating to our 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2017,2023, which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services is set forth in the definitive Proxy Statement relating to our 20182024 Annual Meeting of Stockholders, which is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
(1) Our Consolidated Financial Statements are included in Part II, Item 8:
| Page | |||||
| Consolidated Balance Sheets | |||||
| Consolidated Statements of Operations | |||||
| Consolidated Statements of Comprehensive Income | |||||
| Consolidated Statements of Stockholders’ Equity (Deficit) | |||||
| Consolidated Statements of Cash Flows | |||||
| Notes to Consolidated Financial Statements | |||||
(2) Supplementary Consolidated Financial Statement Schedules:
All schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits:
See attached Exhibit Index
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| EXHIBIT INDEX | ||||||||||||||||||||
| Exhibit Number | Description | |||||||||||||||||||
| — | Certificate of Incorporation of Travelzoo (Incorporated by reference to our Pre-Effective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002). | |||||||||||||||||||
| — | Certificate of Amendment of Certificate Incorporation of Travelzoo (File No. 000-50171), filed May 10, 2017) | |||||||||||||||||||
| — | Certificate of Amendment of Certificate of Incorporation of Travelzoo (Incorporated by reference to our Schedule 14A (File No. 000-50171), filed April 1, 2019) | |||||||||||||||||||
| — | Amended and Restated By-laws of Travelzoo (Incorporated by reference to Exhibit 3.5 on Form 8-K (File No. 000-50171), filed April 5, 2022). | |||||||||||||||||||
4.1* | — | Description of the Company’s Common and Preferred Stock (Incorporated by reference to Exhibit 4.1 on Form 10-K (File No. 000-50171), filed March 31, 2021) | ||||||||||||||||||
| — | Form of Director and Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.1 on Form 10-Q (File No. 000-50171), filed November 9, 2007) | |||||||||||||||||||
| — | Stock Repurchase Agreement, dated March 27, 2021, between Travelzoo and Holger Bartel (Incorporated by reference to Exhibit 10.11 on Form 10-K (File No. 000-50171), filed March 31, 2021) | |||||||||||||||||||
| — | Subsidiaries of Travelzoo | |||||||||||||||||||
| — | Consent of KPMG LLP, Independent Registered Public Accounting Firm | |||||||||||||||||||
| — | Consent of RSM US LLP, Independent Registered Public Accounting Firm | |||||||||||||||||||
24.1‡ | — | Power of Attorney (included on signature page) | ||||||||||||||||||
| — | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||
| — | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||
| — | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||
| — | Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||
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| — | Travelzoo Clawback Policy, dated October 10, 2022 | |||||||||||||||||||
| 101.INS‡ | — | XBRL Instance Document | ||||||||||||||||||
| 101.SCH‡ | — | XBRL Taxonomy Extension Schema Document | ||||||||||||||||||
| 101.CAL‡ | — | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||||||||
| 101.DEF‡ | — | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||||||||
| 101.LAB‡ | — | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||||||||
| 101.PRE‡ | — | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||||
* This exhibit is a management contract or a compensatory plan or arrangement.
‡ Filed herewith
† Furnished herewith
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TRAVELZOO | |||||||||
| By: | /s/ LIJUN QI | ||||||||
| Lijun Qi | |||||||||
Date: March 15, 201822, 2024
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Glen CeremonyLijun Qi as his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Form 10-K, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in order to effectuate the same as fully to all intents and purposes as he or she might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signatures | Title(s) | Date | ||||||||||||||
| /s/ | March | |||||||||||||||
| /s/ HOLGER BARTEL | Global Chief Executive Officer | March 22, 2024 | ||||||||||||||
| Holger Bartel | ||||||||||||||||
| /s/ LIJUN QI | Principal Accounting Officer | March 22, 2024 | ||||||||||||||
| Lijun Qi | ||||||||||||||||
| /s/ | March | |||||||||||||||
| /s/ MICHAEL KARG | Director | March 22, 2024 | ||||||||||||||
| Michael Karg | ||||||||||||||||
| /s/ CARRIE LIQUN LIU | Director | March | ||||||||||||||
| Carrie Liqun Liu | ||||||||||||||||
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