Travelzoo(TZOO) - 2024 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents Travelzoo's unaudited condensed consolidated financial statements for the periods ended June 30, 2024, and related notes Item 1. Financial Statements This section presents Travelzoo's unaudited condensed consolidated financial statements for the periods ended June 30, 2024, covering balance sheets, income statements, cash flows, and comprehensive notes on accounting policies and other financial details Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (June 30, 2024 vs. December 31, 2023) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Total assets | $51,513 | $55,382 | | Total liabilities | $45,868 | $46,499 | | Total stockholders' equity | $5,645 | $8,883 | | Cash and cash equivalents | $12,567 | $15,713 | | Merchant payables | $16,708 | $20,622 | | Deferred revenue | $3,207 | $2,044 | - Total assets decreased by $3,869 thousand from December 31, 2023, to June 30, 2024. Total stockholders' equity decreased by $3,238 thousand during the same period[5] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $21,141 | $21,128 | $43,126 | $42,729 | | Gross profit | $18,621 | $18,248 | $37,966 | $37,158 | | Operating income | $4,011 | $3,273 | $9,602 | $7,984 | | Net income attributable to Travelzoo | $2,927 | $2,626 | $7,163 | $6,299 | | Basic EPS (Continuing Operations) | $0.23 | $0.17 | $0.54 | $0.41 | | Diluted EPS (Continuing Operations) | $0.23 | $0.17 | $0.54 | $0.40 | - Net income attributable to Travelzoo increased by $301 thousand for the three months ended June 30, 2024, and by $864 thousand for the six months ended June 30, 2024, compared to the same periods in 2023[7] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $2,920 | $2,663 | $7,145 | $6,344 | | Foreign currency translation adjustment | $(90) | $135 | $(344) | $215 | | Total comprehensive income | $2,830 | $2,798 | $6,801 | $6,559 | - Total comprehensive income increased for both the three and six months ended June 30, 2024, compared to the prior year, despite a negative foreign currency translation adjustment in 2024[9] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $7,927 | $5,650 | | Net cash used in investing activities | $(83) | $(44) | | Net cash used in financing activities | $(10,679) | $(5,169) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(3,146) | $819 | | Cash, cash equivalents and restricted cash at end of period | $13,243 | $20,197 | - Net cash provided by operating activities significantly increased to $7.9 million for the six months ended June 30, 2024, from $5.6 million in the prior year. However, net cash used in financing activities more than doubled, primarily due to increased common stock repurchases[11] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (June 30, 2024 vs. December 31, 2023) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Total Travelzoo Stockholders' Equity | $966 | $4,186 | | Noncontrolling interest | $4,679 | $4,697 | | Total Stockholders' Equity | $5,645 | $8,883 | | Retained Earnings | $17,083 | $19,508 | | Common Stock Shares Outstanding | 12,402 | 13,575 | - Total Travelzoo stockholders' equity decreased significantly from $4,186 thousand at December 31, 2023, to $966 thousand at June 30, 2024, largely due to common stock repurchases and retirement of treasury stock[12][13] Notes to Condensed Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies - Travelzoo is a global Internet media company operating Travelzoo® and Jack's Flight Club®, generating revenue from advertising, membership fees, and other sources. The company is developing Travelzoo META for Metaverse travel experiences[16][109] - Travelzoo exited its Asia Pacific business in March 2020, pivoting to a licensing model for Australia, Japan, New Zealand, Singapore, and South Korea, receiving quarterly royalty payments[18][112] - The company introduced an annual membership fee of $40 for new members in the US, Canada, UK, and Germany starting January 1, 2024, with existing members waived for 2024[33][121] Deferred Revenue Breakdown (June 30, 2024 vs. December 31, 2023) | Category (in millions) | June 30, 2024 | December 31, 2023 | | :--------------------- | :------------ | :---------------- | | Total Deferred Revenue | $3.2 | $2.0 | | Jack's Flight Club | $2.0 | $1.5 | | Travelzoo NA & Europe | $1.2 | $0.6 | - As of June 30, 2024, the company had $4.2 million in unredeemed vouchers sold, with a refund reserve of $177,000. Merchant payables related to unredeemed vouchers totaled $16.7 million[38][39] Note 2: Net Income Per Share Net Income Per Share (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS (Continuing Operations) | $0.23 | $0.17 | $0.54 | $0.41 | | Diluted EPS (Continuing Operations) | $0.23 | $0.17 | $0.54 | $0.40 | | Weighted average common shares—basic | 12,895 | 15,275 | 13,191 | 15,485 | | Weighted average common shares—diluted | 12,976 | 15,337 | 13,300 | 15,557 | - Basic and diluted EPS from continuing operations increased for both the three and six months ended June 30, 2024, compared to 2023, despite a reduction in weighted-average common shares outstanding[50] Note 3: Acquisitions - Travelzoo acquired a 60% equity interest in Jack's Flight Club in January 2020. In December 2022, the company acquired Metaverse Travel Experiences (MTE) from Azzurro Capital Inc., a related party, in exchange for cash, a promissory note, and MTE's capital stock[51][52] Intangible Assets from Acquisitions (Fair Value and Estimated Life) | Intangible Asset (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 agreements (Jack's Flight Club) | $660 | 4.0 | | Secret Escapes Spain member database | $445 | 3.0 | | Secret Escapes U.S. member database | $1,751 | 2.3 | - Amortization expense for acquired intangibles decreased significantly to $87,000 for the three months ended June 30, 2024, from $388,000 in 2023, and to $405,000 for the six months ended June 30, 2024, from $790,000 in 2023[57] Note 4: Commitments and Contingencies - The company is subject to various claims and legal proceedings in the ordinary course of business, with accruals for legal contingencies not material as of June 30, 2024. Purchase commitments aggregated approximately $256,000 as of June 30, 2024[60][61] - Travelzoo Germany received $205,000 in German Federal Government funding for COVID-19 pandemic relief in Q2 2023, with a final declaration due by September 30, 2024[62] Note 5: Income Taxes Effective Tax Rate from Continuing Operations (Three and Six Months Ended June 30, 2024 vs. 2023) | Period | Effective Tax Rate | | :----- | :----------------- | | Three Months Ended June 30, 2024 | 30% | | Three Months Ended June 30, 2023 | 29% | | Six Months Ended June 30, 2024 | 28% | | Six Months Ended June 30, 2023 | 28% | - The effective tax rate for the three months ended June 30, 2024, increased to 30% from 29% in 2023, primarily due to an increase in certain non-deductible expenses. The six-month rate remained consistent at 28%[63] - As of June 30, 2024, the company had $23.9 million in total unrecognized tax benefits, with up to $16.6 million potentially favorably affecting the effective income tax rate if realized[65] Note 6: Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $(4,861) | $(4,825) | $(4,607) | $(4,905) | | Foreign currency translation adjustment | $(90) | $135 | $(344) | $215 | | Ending balance | $(4,951) | $(4,690) | $(4,951) | $(4,690) | - Accumulated other comprehensive loss increased due to negative foreign currency translation adjustments in both the three and six months ended June 30, 2024, contrasting with positive adjustments in the prior year[67] Note 7: Stock-Based Compensation and Stock Options - In March 2024, the Global CEO, Holger Bartel, was granted 600,000 stock options with an exercise price of $8.58, vesting 25% every six months over two years. $609,000 in stock-based compensation was recorded for this grant in Q2 2024[78] - In June 2024, 100,000 stock options were granted as inducement awards to an employee, with an exercise price of $7.87, vesting annually over four years. $8,000 in stock-based compensation was recorded in Q2 2024[79] - As of June 30, 2024, unrecognized stock-based compensation expense totaled approximately $1.8 million for Holger Bartel's grant (expected to be recognized over 1.5 years) and $394,000 for the inducement awards (over 4.0 years)[78][79] Note 8: Stock Repurchase Program - Travelzoo's Board authorized a new stock repurchase program on April 29, 2024, for up to 1,000,000 shares. During Q2 2024, the company repurchased 600,000 shares for $5.0 million under this program, with 400,000 shares remaining[85] - In June 2024, the company privately repurchased 200,000 shares from Global CEO Holger Bartel for $1.5 million[86] - During the three months ended March 31, 2024, the company repurchased 400,000 shares for $3.9 million under a previous program, completing it[83] Note 9: Segment Reporting and Significant Customer Information - Travelzoo operates four reportable segments: Travelzoo North America, Travelzoo Europe, Jack's Flight Club, and New Initiatives (licensing, Travelzoo META, MTE)[87][114] Segment Revenues and Operating Profit (Three Months Ended June 30, 2024 vs. 2023) | Segment (in thousands) | Revenues 2024 | Revenues 2023 | Operating Profit (Loss) 2024 | Operating Profit (Loss) 2023 | | :--------------------- | :------------ | :------------ | :--------------------------- | :--------------------------- | | Travelzoo North America | $14,134 | $14,133 | $3,717 | $3,753 | | Travelzoo Europe | $5,951 | $5,887 | $512 | $(239) | | Jack's Flight Club | $1,033 | $1,095 | $(34) | $97 | | New Initiatives | $23 | $13 | $(184) | $(338) | | Consolidated | $21,141 | $21,128 | $4,011 | $3,273 | Revenue Breakdown by Category (Three and Six Months Ended June 30, 2024 vs. 2023) | Category (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advertising | $19,957 | $20,020 | $40,807 | $40,665 | | Membership Fees | $1,161 | $1,095 | $2,265 | $2,043 | | Other | $23 | $13 | $54 | $21 | | Total revenues | $21,141 | $21,128 | $43,126 | $42,729 | Revenue by Geography (Three and Six Months Ended June 30, 2024 vs. 2023) | Geography (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $12,805 | $12,749 | $25,576 | $26,222 | | United Kingdom | $4,855 | $4,858 | $10,370 | $9,820 | | Germany | $1,796 | $1,738 | $3,667 | $3,233 | | Rest of the world | $1,685 | $1,783 | $3,513 | $3,454 | | Total revenues | $21,141 | $21,128 | $43,126 | $42,729 | Note 10: Leases Total Lease Cost (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total lease cost | $759 | $742 | $1,548 | $1,496 | Operating Lease Liabilities (June 30, 2024 vs. December 31, 2023) | Metric (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $5,873 | $6,015 | | Total operating lease liabilities | $8,731 | $9,247 | | Weighted average remaining lease term (years) | 4.93 | 5.26 | | Weighted average discount rate | 4.6% | 4.3% | - Cash payments against operating lease liabilities were $1.7 million for both six-month periods ended June 30, 2024 and 2023. ROU assets obtained in exchange for lease obligations were $646,000 for the six months ended June 30, 2024[98] Note 11: Non-Controlling Interest - The company's consolidated financial statements include Jack's Flight Club, where Travelzoo holds a 60% equity interest but has operating control[102] Non-Controlling Interest (December 31, 2022 to June 30, 2024) | Period | Non-controlling interest (in thousands) | | :----- | :-------------------------------------- | | December 31, 2022 | $4,595 | | March 31, 2023 | $4,603 | | June 30, 2023 | $4,640 | | September 30, 2023 | $4,692 | | December 31, 2023 | $4,697 | | March 31, 2024 | $4,686 | | June 30, 2024 | $4,679 | - Net income attributable to non-controlling interest was $(7) thousand for the three months ended June 30, 2024, compared to $37 thousand in the prior year, and $(18) thousand for the six months ended June 30, 2024, compared to $45 thousand in the prior year[7][103] Note 12: Related Party Transactions - Travelzoo acquired MTE from Azzurro Capital Inc., a controlling shareholder, in December 2022. The consideration included a promissory note, which had $1.8 million remaining principal as of June 30, 2024[52][104] - In June 2024, Travelzoo repurchased 200,000 shares of common stock from its Global CEO, Holger Bartel, for $1.5 million, a transaction approved by the Compensation Committee[86][106] - A lawsuit was filed in May 2023 against Ralph Bartel, the Ralph Bartel 2005 Trust, and Azzurro Capital Inc. for recovery of short swing profits under Section 16(b) of the Securities Exchange Act, with Travelzoo named as a nominal defendant[105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Travelzoo's financial condition and operational results for the three and six months ended June 30, 2024. It covers the company's business overview, key revenue drivers, market trends, segment performance, liquidity, and critical accounting policies, highlighting strategic shifts like the introduction of membership fees and ongoing stock repurchase programs Overview - Travelzoo is a global Internet media company operating Travelzoo® and Jack's Flight Club®, with over 30 million members. It generates revenue from advertising, membership fees, and other sources, including licensing and the new Travelzoo META subscription service[109][111][121] - The company transitioned its Asia Pacific business to a licensing model in March 2020, generating royalties from agreements in Australia, Japan, New Zealand, Singapore, and South Korea[112][113] - Travelzoo introduced an annual membership fee of $40 for new members in key markets starting January 1, 2024, while waiving the fee for existing members in 2024[121] Trends in Our Business - Future revenue generation depends on factors like member willingness to purchase deals, demand for vouchers, and the ability to enroll new paying members and transition existing ones without adversely affecting the membership base[122] - The company is adjusting user acquisition strategies due to the introduction of membership fees, expecting increased costs for acquiring new paying members. Investments in mobile app development are also anticipated[127][130] - Travelzoo aims to grow by building trusted brands, refining membership value, sourcing exclusive offers, and innovating new experiences and revenue streams, while anticipating slow growth in fixed costs and increased investment in new initiatives[135][136] Results of Operations Results of Operations as a Percentage of Total Revenues (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | 100.0% | 100.0% | 100.0% | 100.0% | | Gross profit | 88.1% | 86.4% | 88.0% | 87.0% | | Operating income | 19.0% | 15.5% | 22.3% | 18.7% | | Net income attributable to Travelzoo | 13.8% | 12.4% | 16.6% | 14.7% | - Operating income as a percentage of revenue increased to 19.0% for the three months and 22.3% for the six months ended June 30, 2024, indicating improved operational efficiency compared to the prior year[140] Operating Metrics Key Operating Metrics (June 30, 2024 vs. 2023) | Metric | June 30, 2024 | June 30, 2023 | | :----- | :------------ | :------------ | | Consolidated Total members | 30,813,000 | 30,823,000 | | Consolidated Average cost per acquisition of a new member | $2.93 | $4.64 | | Consolidated Revenue per member | $2.80 | $2.77 | | Consolidated Revenue per employee | $373,000 | $356,000 | - The average cost per acquisition of a new member significantly decreased to $2.93 in June 2024 from $4.64 in June 2023, reflecting management's strategic plan to reduce member acquisition costs[143][154] - Revenue per employee increased to $373,000 in June 2024 from $356,000 in June 2023, indicating improved productivity[143] Revenues Revenue Breakdown by Category (Three and Six Months Ended June 30, 2024 vs. 2023) | Category (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advertising | $19,957 | $20,020 | $40,807 | $40,665 | | Membership Fees | $1,161 | $1,095 | $2,265 | $2,043 | | Other | $23 | $13 | $54 | $21 | | Total revenues | $21,141 | $21,128 | $43,126 | $42,729 | - Advertising revenue slightly decreased by $63,000 for the three months ended June 30, 2024, primarily due to a $664,000 decrease in Top 20 and Standalone revenues, partially offset by increases in Travelzoo Network and Hotel commission[148] - Membership fees increased by $66,000 for the three months and $222,000 for the six months ended June 30, 2024, driven by higher subscription fees from Travelzoo and Jack's Flight Club members[149] Cost of Revenues Cost of Revenues (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $2,520 | $2,880 | $5,160 | $5,571 | - Cost of revenues decreased by $360,000 for the three months and $411,000 for the six months ended June 30, 2024, primarily due to reductions in software and license costs and estimated refunds to members[152] Operating Expenses Sales and Marketing Sales and Marketing Expenses (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales and marketing expenses | $9,386 | $10,142 | $17,984 | $19,438 | | Advertising expenses as % of total S&M | 19% | 28% | 15% | 27% | - Sales and marketing expenses decreased by $756,000 for the three months and $1.5 million for the six months ended June 30, 2024, primarily due to a $2.3 million decrease in member acquisition costs as part of management's strategic plan[154] Product Development Product Development Expenses (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product development expenses | $603 | $518 | $1,169 | $1,008 | - Product development expenses increased by $85,000 for the three months and $161,000 for the six months ended June 30, 2024, primarily due to higher professional service expenses[155] General and Administrative General and Administrative Expenses (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative expenses | $4,621 | $4,315 | $9,211 | $8,728 | - General and administrative expenses increased by $306,000 for the three months and $483,000 for the six months ended June 30, 2024, mainly due to increases in salary and related expenses and professional service expenses[156][157] Other Income, net Other Income, net (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Other income, net | $176 | $479 | $315 | $829 | - Other income, net decreased by $303,000 for the three months and $514,000 for the six months ended June 30, 2024. This was primarily due to the absence of German federal government COVID-19 funding received in 2023, decreased sublease income, and reduced interest income from Azzurro's note repayment[158][159] Income Taxes Income Tax Expense and Effective Tax Rate (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense (in thousands) | $1,267 | $1,091 | $2,772 | $2,469 | | Effective tax rate from continuing operations | 30% | 29% | 28% | 28% | - The effective tax rate for the three months ended June 30, 2024, increased to 30% from 29% in 2023, mainly due to an increase in certain non-deductible expenses[160] Segment Performance Travelzoo North America Travelzoo North America Performance (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $14,134 | $14,133 | $28,362 | $28,891 | | Operating profit | $3,717 | $3,753 | $8,155 | $8,269 | | Operating profit as a % of revenue | 26.3% | 26.6% | 28.8% | 28.6% | - North America revenues remained stable for the three months ended June 30, 2024, with increases in Travelzoo Network, Hotel commission, and Getaway Vouchers offsetting a decrease in Top 20 and Standalone revenues[163] - North America expenses increased by $37,000 for the three months ended June 30, 2024, primarily due to increased salary and related expenses, partially offset by decreased member acquisition costs[163] Travelzoo Europe Travelzoo Europe Performance (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $5,951 | $5,887 | $12,613 | $11,774 | | Operating profit | $512 | $(239) | $1,894 | $218 | | Operating profit as a % of revenue | 8.6% | (4.1)% | 15.0% | 1.9% | - Europe revenues increased by $64,000 for the three months and $839,000 for the six months ended June 30, 2024, driven by advertising revenue increases (especially Hotel commission) and positive foreign currency movements[167][168] - Europe expenses decreased by $687,000 for the three months and $837,000 for the six months ended June 30, 2024, primarily due to reduced member acquisition costs and trade/brand marketing expenses[167][168] Jack's Flight Club Jack's Flight Club Performance (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $1,033 | $1,095 | $2,096 | $2,043 | | Operating profit (loss) | $(34) | $97 | $(133) | $52 | | Operating profit (loss) as a % of revenue | (3.3)% | 8.9% | (6.3)% | 2.5% | - Jack's Flight Club revenues decreased by $62,000 for the three months ended June 30, 2024, due to lower subscription fees, but increased by $53,000 for the six months due to an increase in premium members[169][170] - Expenses for Jack's Flight Club increased by $69,000 for the three months and $238,000 for the six months ended June 30, 2024, primarily due to higher salary and related expenses and software expenses[169][170] New Initiatives New Initiatives Performance (Three and Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $23 | $13 | $55 | $21 | | Operating profit (loss) | $(184) | $(338) | $(314) | $(555) | - New Initiatives revenues increased by $10,000 for the three months and $34,000 for the six months ended June 30, 2024, driven by growth in retail/fashion business and licensing revenue[171][172] - Operating losses for New Initiatives decreased, with expenses decreasing by $144,000 for the three months and $207,000 for the six months ended June 30, 2024, primarily due to reduced salary and related expenses[171][172] Liquidity and Capital Resources - As of June 30, 2024, Travelzoo had $12.6 million in cash and cash equivalents, with $8.0 million held outside the U.S. Cash, cash equivalents, and restricted cash decreased by $3.1 million from December 31, 2023, primarily due to $10.4 million used for common stock repurchases[173] - The company had $16.7 million in merchant payables related to unredeemed vouchers, resulting in negative net working capital of $4.3 million. Management expects current cash on hand to be sufficient for working capital needs for at least the next twelve months[174] Cash Flow Summary (Six Months Ended June 30, 2024 vs. 2023) | Metric (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $7,927 | $5,650 | | Net cash used in investing activities | $(83) | $(44) | | Net cash used in financing activities | $(10,679) | $(5,169) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(3,146) | $819 | Critical Accounting Policies and Estimates - Travelzoo's critical accounting policies and estimates, including income taxes, require significant judgment and assumptions that can impact reported financial amounts. Actual results may differ from these estimates[183] Recent Accounting Pronouncements - The company is evaluating the impact of ASU 2023-07 on segment reporting disclosures and ASU 2023-09 on income tax disclosures, both effective for future annual and interim periods[24][25][184] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not required for smaller reporting companies, which Travelzoo qualifies as - Travelzoo is a smaller reporting company and is therefore not required to provide quantitative and qualitative disclosures about market risk[3][185] Item 4. Controls and Procedures Management concluded that Travelzoo's disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness related to insufficient internal resources for accounting for complex transactions. However, the condensed consolidated financial statements are deemed to fairly present the company's financial position. A remediation plan is in progress, including personnel realignment, process improvements, and new controls - As of June 30, 2024, disclosure controls and procedures were deemed not effective due to a material weakness: insufficient internal financial staff expertise for complete and timely reporting of non-routine, non-recurring, unusual, or complex transactions[186][188] - Despite the material weakness, management believes the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[187] - Remediation efforts include realigning personnel, recruiting additional finance headcount, improving reporting processes, designing new controls, and engaging outside subject matter experts for complex transactions[189] PART II—OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section incorporates by reference the information on commitments and contingencies from Note 4 of the condensed consolidated financial statements, which details the company's exposure to various claims and legal proceedings in the ordinary course of business - Information regarding legal proceedings is incorporated by reference from Note 4, which states that accruals for legal contingencies were not material as of June 30, 2024[60][192] Item 1A. Risk Factors This section refers readers to the comprehensive discussion of risk factors in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, emphasizing that these risks could materially affect the business, financial position, or results of operations - Readers should refer to the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as these factors could materially affect Travelzoo's business, financial position, or results of operations[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details Travelzoo's common stock repurchase activities during the three months ended June 30, 2024, including repurchases under publicly announced programs and a private repurchase from the Global CEO, Holger Bartel Repurchases of Equity Securities (May 1, 2024 – June 30, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Shares that May Yet be Purchased Under the Program | | :----- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | :--------------------------------------------------------- | | May 1, 2024–May 31, 2024 | 482,172 | $8.43 | 482,172 | 517,828 | | June 1, 2024–June 30, 2024 | 317,828 | $7.81 | 317,828 | 200,000 | | Total (Q2 2024) | 800,000 | | 800,000 | | - During the three months ended June 30, 2024, Travelzoo repurchased a total of 800,000 shares of common stock[194][197] - On April 29, 2024, a new program authorized the repurchase of up to 1,000,000 shares; 600,000 shares were repurchased for $5.0 million in Q2 2024, leaving 400,000 shares remaining[196] - In June 2024, the company privately repurchased 200,000 shares from Global CEO Holger Bartel for $1.5 million[197] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[198] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures required for Travelzoo - No mine safety disclosures are applicable to Travelzoo[197] Item 5. Other Information This section states that there is no other information to report under this item - No other information is reported under this item[200] Item 6. Exhibits This section provides a list of exhibits filed with the Form 10-Q, including organizational documents, indemnification agreements, a stock repurchase agreement, certifications, and XBRL taxonomy documents - Exhibits include organizational documents (Certificate of Incorporation, By-laws), a Director and Officer Indemnification Agreement, the Stock Repurchase Agreement dated June 15, 2024, certifications (CEO, CFO), and XBRL documents[201] Signature This section contains the signature of Lijun Qi, Principal Accounting Officer, on behalf of Travelzoo, certifying the filing of the report on August 9, 2024 - The report was signed by Lijun Qi, Principal Accounting Officer, on behalf of Travelzoo on August 9, 2024[203]