TRAVELZOO [TZOO] Filings

10-Q 1 tzoo-20230630.htm 10-Q tzoo-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________

Form 10-Q

______________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No.: 000-50171

_______________________________________________________________________________

Travelzoo

(Exact name of registrant as specified in its charter)

________________________________________________________________________________


Delaware			36-4415727
(State or other jurisdiction of incorporation or organization)			(I.R.S. employer identification no.)

590 Madison Avenue, 35th Floor New York, New York			10022
(Address of principal executive offices)			(Zip code)

Registrant’s telephone number, including area code: +1 (212) 516-1300

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

TZOO

The NASDAQ Stock Market

_________________________________________________________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisited financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of Travelzoo common stock outstanding as of August 10, 2023 was 14,910,098 shares.

TRAVELZOO

Table of Contents


PART I—FINANCIAL INFORMATION			Page

Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of June 3 0 , 2023 and December 31, 2022			4
Condensed Consolidated Statements of Operations for the Three and Six Months Ended J une 3 0 , 2023 and 2022			5
Condensed Consolidated Statements of Comprehensive Income for the Three and S ix Months Ended June 3 0 , 2023 and 2022			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2023 and 2022			7
Condensed Consolidated Statements of Stockholders' Equity for the Three and S ix Months Ended June 3 0 , 2023 and 2022			8
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			47
Item 4. Controls and Procedures			47

PART II—OTHER INFORMATION

Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3. Defaults Upon Senior Securities			48
Item 4. Mine Safety Disclosures			48
Item 5. Other Information			48
Item 6. Exhibits			49
Signature			50

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

TRAVELZOO

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	19,513	$	18,693
Accounts receivable, less allowance for doubtful accounts of $1,345 and $1,468 as of June 30, 2023 and December 31, 2022, respectively	10,287		13,820
Prepaid income taxes	801		1,778
Prepaid expenses and other	1,368		1,289
Assets from discontinued operations	10		11
Total current assets	31,979		35,591
Deposits and other	2,492		5,094
Deferred tax assets	3,222		3,222
Restricted cash	675		675
Operating lease right-of-use assets	6,292		7,440
Property and equipment, net	652		657
Intangible assets, net	2,860		3,651
Goodwill	10,944		10,944
Total assets	$	59,116	$	67,274
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,254	$	4,271
Merchant payables	23,885		32,574
Accrued expenses and other	4,316		5,049
Deferred revenue	2,697		2,216
Income tax payable	234		—
Operating lease liabilities	2,395		2,972
Liabilities from discontinued operations	451		452
Total current liabilities	36,232		47,534

Long-term operating lease liabilities	7,493		8,326
Other long-term liabilities	4,322		2,563
Total liabilities	48,047		58,423
Commitments and contingencies	—		—
Stockholders’ equity:
Common stock, $0.01 par value (20,000 shares authorized; 15,170 shares issued and outstanding as of June 30, 2023, 16,505 shares issued and 15,704 outstanding as of December 31, 2022)	152		165
Treasury stock (at cost, 801 shares at December 31, 2022)	—		(7,130)
Additional paid in capital	11,816		23,274
Tax indemnification	(9,537)		(9,537)
Note receivable from shareholder	(4,753)		(4,753)
Retained earnings	13,441		7,142
Accumulated other comprehensive loss	(4,690)		(4,905)
Total Travelzoo stockholders’ equity	6,429		4,256
Non-controlling interest	4,640		4,595
Total stockholders’ equity	11,069		8,851
Total liabilities and stockholders’ equity	$	59,116	$	67,274

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues	$	21,128	$	17,689	$	42,729	$	36,142
Cost of revenues	2,880		2,163		5,571		4,995
Gross profit	18,248		15,526		37,158		31,147
Operating expenses:
Sales and marketing	10,142		8,480		19,438		17,061
Product development	518		454		1,008		907
General and administrative	4,315		4,811		8,728		9,479
Total operating expenses	14,975		13,745		29,174		27,447
Operating income	3,273		1,781		7,984		3,700
Other income, net	479		195		829		1,618
Income from continuing operations before income taxes	3,752		1,976		8,813		5,318
Income tax expense	1,091		928		2,469		1,896
Income from continuing operations	2,661		1,048		6,344		3,422
Income (loss) from discontinued operations, net of taxes	2		10		—		(1)
Net income	2,663		1,058		6,344		3,421
Net income attributable to non-controlling interest	37		30		45		34
Net income attributable to Travelzoo	$	2,626	$	1,028	$	6,299	$	3,387

Net income attributable to Travelzoo—continuing operations	$	2,624	$	1,018	$	6,299	$	3,388
Net income (loss) attributable to Travelzoo—discontinued operations	$	2	$	10	$	—	$	(1)

Income per share—basic
Continuing operations	$	0.17	$	0.08	$	0.41	$	0.28
Discontinued operations	$	—	$	—	$	—	$	—
Net income per share —basic	$	0.17	$	0.08	$	0.41	$	0.28

Income per share—diluted
Continuing operations	$	0.17	$	0.08	$	0.40	$	0.27
Discontinued operations	$	—	$	—	$	—	$	—
Income per share—diluted	$	0.17	$	0.08	$	0.40	$	0.27

Shares used in per share calculation from continuing operations—basic	15,275		12,513		15,485		12,285
Shares used in per share calculation from discontinued operations—basic	15,275		12,513		15,485		12,285

Shares used in per share calculation from continuing operations—diluted	15,337		12,637		15,557		12,591
Shares used in per share calculation from discontinued operations—diluted	15,337		12,637		15,557		12,591

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income	$	2,663	$	1,058	$	6,344	$	3,421
Other comprehensive income:
Foreign currency translation adjustment	135		(602)		215		(740)
Total comprehensive income	$	2,798	$	456	$	6,559	$	2,681

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	6,344	$	3,421
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	945		1,118
Stock-based compensation	828		1,131
Deferred income tax	(38)		550
Loss on long-lived assets	10		38
Gain on equity investment in WeGo	—		(196)
Net foreign currency effect	(33)		214
Reversal of loss on accounts receivable, refund reserve and other	(829)		(2,246)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	3,888		(131)
Prepaid income taxes	1,017		670
Prepaid expenses and other	2,485		(138)
Accounts payable	(2,393)		(2,056)
Merchant payables	(8,604)		(19,784)
Accrued expenses and other	377		172
Income tax payable	234		(186)
Other liabilities, net	1,419		433
Net cash provided by (used in) operating activities	5,650		(16,990)
Cash flows from investing activities:
Proceeds from repayment of note receivable	113		—
Purchases of intangible assets	—		(1,049)
Proceeds from sale of equity investment in WeGo	—		196
Purchases of property and equipment	(157)		(175)
Net cash used in investing activities	(44)		(1,028)
Cash flows from financing activities:
Repurchase of common stock	(4,870)		—


Exercise of stock options, net of taxes paid for net share settlement	(299)		1,885
Net cash provided by (used in) financing activities	(5,169)		1,885
Effect of exchange rate changes on cash, cash equivalents and restricted cash	382		(2,176)
Net increase (decrease) in cash, cash equivalents and restricted cash	819		(18,309)
Cash, cash equivalents and restricted cash at beginning of period	19,378		44,989
Cash, cash equivalents and restricted cash at end of period	$	20,197	$	26,680
Supplemental disclosure of cash flow information:
Cash paid (refund) for income taxes, net	$	(494)	$	771

Cash paid for amounts included in the measurement of lease liabilities	$	1,725	$	1,715
Non-cash consideration for purchase of intangible asset	$	—	$	1,150

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands)


	Common Stock			Treasury Stock		Additional Paid-In Capital		Tax Indemnification		Note Receivable from Shareholder		Retained Earnings		Accumulated Other Comprehensive Loss		Total Travelzoo Stockholders’ Equity		Non-controlling interest		Total Stockholders’ Equity
	Shares	Amount
Balances, March 31, 2023	16,505	$	165	$	(7,316)	$	23,670	$	(9,537)	$	(4,753)	$	10,815	$	(4,825)	$	8,219	$	4,603	$	12,822
Stock-based compensation expense	—	—		—		432		—		—		—		—		432		—		432
Repurchase of common stock	—	—		(4,683)		—		—		—				—		(4,683)		—		(4,683)
Retirement of treasury stock	(1,495)	(14)		11,999		(11,985)		—		—		—		—		—		—		—
Exercise of stock options and taxes paid for net share	160	1		—		(301)		—		—		—		—		(300)		—		(300)
Foreign currency translation adjustment	—	—		—		—		—		—		—		135		135		—		135
Net income	—	—		—		—		—		—		2,626		—		2,626		37		2,663
Balances, June 30, 2023	15,170	$	152	$	—	$	11,816	$	(9,537)	$	(4,753)	$	13,441	$	(4,690)	$	6,429	$	4,640	$	11,069


	Common Stock			Treasury Stock		Additional Paid-In Capital		Tax Indemnification		Note Receivable from Shareholder		Retained Earnings		Accumulated Other Comprehensive Loss		Total Travelzoo Stockholders’ Equity		Non-controlling interest		Total Stockholders’ Equity
	Shares	Amount
																		As Restated		As Restated
Balances, March 31, 2022	12,551	$	126	$	(5,488)	$	4,957	$	—	$	—	$	2,867	$	(3,931)	$	(1,469)	$	4,604	$	3,135
Stock-based compensation expense	—	—		—		589		—		—		—		—		589		—		589
Proceeds from exercise of stock options, net of share settlement	540	5		—		1,880		—		—		—		—		1,885		—		1,885
Foreign currency translation adjustment	—	—		—		—		—		—		—		(602)		(602)		—		(602)
Net income	—	—		—		—		—		—		1,028		—		1,028		30		1,058
Balances, June 30, 2022	13,091	$	131	$	(5,488)	$	7,426	$	—	$	—	$	3,895	$	(4,533)	$	1,431	$	4,634	$	6,065

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands)


	Common Stock			Treasury Stock		Additional Paid-In Capital		Tax Indemnification		Note Receivable from Shareholder		Retained Earnings		Accumulated Other Comprehensive Loss		Total Travelzoo Stockholders’ Equity		Non-controlling interest		Total Stockholders’ Equity
	Shares	Amount
Balances, January 1, 2023	16,505	$	165	$	(7,130)	$	23,274	$	(9,537)	$	(4,753)	$	7,142	$	(4,905)	$	4,256	$	4,595	$	8,851
Stock-based compensation expense	—	—		—		828		—		—		—		—		828		—		828
Repurchase of common stock	—	—		(4,869)		—		—		—				—		(4,869)		—		(4,869)
Retirement of treasury stock	(1,495)	(14)		11,999		(11,985)		—		—		—		—		—		—		—
Exercise of stock options and taxes paid for net share	160	1		—		(301)		—		—		—		—		(300)		—		(300)
Foreign currency translation adjustment	—	—		—		—		—		—		—		215		215		—		215
Net income	—	—		—		—		—		—		6,299		—		6,299		45		6,344
Balances, June 30, 2023	15,170	$	152	$	—	$	11,816	$	(9,537)	$	(4,753)	$	13,441	$	(4,690)	$	6,429	$	4,640	$	11,069


	Common Stock			Treasury Stock		Additional Paid-In Capital		Tax Indemnification		Note Receivable from Shareholder		Retained Earnings		Accumulated Other Comprehensive Loss		Total Travelzoo Stockholders’ Equity		Non-controlling interest		Total Stockholders’ Equity
	Shares	Amount
																		As Restated		As Restated
Balances, January 1, 2022	12,551	$	126	$	(5,488)	$	4,415	—		—		$	508	$	(3,793)	$	(4,232)	$	4,600	$	368
Stock-based compensation expense	—	—		—		1,131		—		—		—		—		1,131		—		1,131
Proceeds from exercise of stock options, net of share settlement	540	5		—		1,880		—		—		—		—		1,885		—		1,885
Foreign currency translation adjustment	—	—		—		—		—		—		—		(740)		(740)		—		(740)
Net income	—	—		—		—		—		—		3,387		—		3,387		34		3,421
Balances, June 30, 2022	13,091	$	131	$	(5,488)	$	7,426	$	—	$	—	$	3,895	$	(4,533)	$	1,431	$	4,634	$	6,065

TRAVELZOO

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Summary of Significant Accounting Policies

(a) The Company and Basis of Presentation

Travelzoo® (including its subsidiaries and affiliates, the “Company” or “we”) is a global Internet media company. Travelzoo provides its 30 million members with exclusive offers and one-of-a-kind experiences personally reviewed by our deal experts around the globe. We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. We work in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible offers.

Our most important products and services are the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps, the Top 20® email newsletter, Standalone email newsletters, the Travelzoo Network, and Jack’s Flight Club®. Our Travelzoo website and newsletters include Local Deals and Getaways listings that allow our members to purchase vouchers for offers from local businesses such as spas, hotels and restaurants. Jack’s Flight Club is a subscription service that provides members with information about exceptional airfares.

We also license Travelzoo products and our intellectual property to licensees in various countries in Asia Pacific, including but not limited to Australia, Japan and Southeast Asia.

In March 2022, we announced the development of Travelzoo META, a subscription service that intends to provide members with exclusive access to innovative, high quality Metaverse travel experiences. On December 30, 2022, we acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), a Metaverse experience scouting and development business to support Travelzoo META.

Stock Purchase Agreement between Travelzoo and Azzurro Capital Inc.

In connection with the development of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro Capital Inc. ("Azzurro"), and also completed a private placement of newly issued 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 purchase price was paid as follows: (a) $1.0 million in cash paid on the Closing Date; (b) $4.8 million paid in the form of a promissory note issued on the Closing Date; and (c) the transfer to the Company of all outstanding capital stock of MTE. 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. As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the note. The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan. Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note. See Note 3: Acquisitions in the unaudited condensed consolidated financial statements for further information.

Jack’s Flight Club

In January 2020, Travelzoo acquired JFC Travel Group Co. (“Jack’s Flight Club”), which operates Jack’s Flight Club, a subscription service that provides members with information about exceptional airfares. As of June 30, 2023, Jack’s Flight Club had over 2 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. See Note 3 to the unaudited condensed consolidated financial statements for further information.

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 in Japan and South Korea, as well as Australia, New Zealand and Singapore. The license agreement for Japan provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on net revenue over a 5 year term, with an option to renew. The territory subject to the license was amended to also include South Korea. An interest free loan was provided to the licensee for JPY 46 million (approximately $430,000), of which $133,000 was repaid in 2021, $113,000 was repaid during the six months ended June 30, 2023, and the remaining is expected to be paid off in 2023. The Company recorded this loan as current prepaid expense and other on the condensed consolidated balance sheet as of June 30, 2023. The Company recognized royalties of

$4,000 for its licensing arrangements from the licensee in Japan for the three and six months ended June 30, 2023. The Company did not recognize any royalty from Travelzoo Japan in 2022.

The license agreement for Australia, New Zealand and Singapore provides a license to the licensee to use the intellectual property of Travelzoo exclusively in Australia, New Zealand and Singapore for quarterly royalty payments based upon net revenue over a 5 year term, with an option to renew. The Company records royalties for its licensing arrangements on a one-quarter lag basis. The Company recognized royalties of $9,000 and $7,000 for its licensing arrangements from the licensee in Australia for the three months ended June 30, 2023 and 2022, respectively. The Company recognized royalties of $17,000 and $12,000 for its licensing arrangements from the licensee in Australia for the six months ended June 30, 2023 and 2022, respectively. We expect the royalty payments to increase over time as the effects of the pandemic subside.

Government funding

In January 2022, July 2022 and May 2023, the Company’s German branch of Travelzoo (Europe) Limited, a wholly-owned subsidiary of the Company (“Travelzoo Germany”), received the notification and payment of approximately $1.2 million, $494,000 and $205,000 from the German Federal Government Bridging Aid III plan, Bridging Aid III+ and Bridging Aid IV, respectively. This program was for companies that suffered a Corona-related decrease in sales of at least 30% in one month compared to the reference month in 2019. Travelzoo Germany applied for the funding in 2021 and 2022, respectively, and was approved by the German government in January 2022 and July of 2022 and May 2023. The Company has to submit a final declaration in connection with the grant and the declaration date has been extended from June 30, 2023 to December 31, 2023. The Company believes it was eligible to participate in the plan and is entitled to the payment and does not expect significant changes to the amount already received from the final submission. The Company recorded $1.2 million, $494,000 and $205,000 gains in Other income, net in the first and third quarters of 2022 and second quarter of 2023, respectively.

The Company also received $85,000 and $153,000 job retention related funding from Canada in the three and six months ended June 30, 2022. Such funding was recorded against salary and related expenses. The Company did not receive job retention related funding in 2023.

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”, we have the responsibility to evaluate at each reporting period, including interim periods, whether conditions and/or events raise substantial doubt about our ability to meet our future financial obligations. In its evaluation for this report, management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due within one year following the date of issuance of this Quarterly Report on Form 10-Q.

We believe we have the ability to meet our obligations for at least one year from the date of issuance of this Form 10-Q. Accordingly, the accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course business.

Ownership

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 June 30, 2023 holds approximately 48.9% of the Company's outstanding shares. Holger Bartel, the Company's Global CEO, is Ralph Bartel's brother and separately holds 3.4% of the Company's outstanding shares as of June 30, 2023.

Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2022, included in the Company’s Form 10-K/A filed with the SEC on August 14, 2023.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The financial results of Jack’s Flight Club have been included in our condensed consolidated financial statements from the date of acquisition. Investments in entities where the Company does not have control, but does have significant influence, are accounted for as equity method investments. We have reclassified prior period financial statements to conform to the current period presentation.

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 U.S. Significant estimates included in the consolidated financial statements and related notes include revenue recognition, refund liability, income taxes, stock-based compensation, loss contingencies, useful lives of property and equipment, purchase price allocation for the business combination and related impairment assessment, relating to the projections and assumptions used. Actual results could differ materially from those estimates. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other future period, and the Company makes no representations related thereto.

(b) Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For Smaller Reporting Companies (as such term is defined by the SEC), such as Travelzoo, the standard is 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 apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted the ASU prospectively on January 1, 2023. This ASU has not and is currently not expected to have a material impact on our consolidated financial statements.

Below are a summary of the Company's significant accounting policies. For a comprehensive description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2022.

Revenue Recognition

The Company follows Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers" (Topic 606).

Under Topic 606, revenue is recognized when control of the 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 primarily advertising fees generated from the publishing of travel and entertainment deals on the Travelzoo website, in the Top 20 email newsletter, in standalone Travelzoo emails and through the Travelzoo Network. The Company also generates transaction-based revenues from the sale of vouchers through our Local Deals and Getaways products and operation of a hotel booking platform and limited offerings of vacation packages and subscription revenues from Jack's Flight Club. The Company's disaggregated revenues are included in “Note 9: Segment Reporting and Significant Customer Information”.

For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.

For the Top 20 email newsletter, Standalone email newsletters and other email products, the Company recognizes revenues when the emails are delivered to its members.

The Company offers advertising on a cost-per-click basis, which means that an advertiser pays the Company only when a user clicks on an advertisement on Travelzoo properties or Travelzoo Network members’ properties. For these customers, the Company recognizes revenues each time a user clicks on the ad.

The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisements, Travelzoo Network properties, or social media properties. For these customers, the Company recognizes revenues each time an advertisement is shown or email delivered.

For transaction-based revenues, including products such as Local Deals, Getaways, hotel platform and vacation packages, the Company evaluates whether it is the principal (i.e., report revenue on a gross basis) versus an agent (i.e., report revenue on a net basis). The Company reports transaction revenue on a net basis because the supplier is primarily responsible for providing the underlying service, and we do not control the service provided by the supplier prior to its transfer to the customer.

For Local Deals and Getaways products, the Company earns a fee for acting as an agent for the sale of vouchers that can be redeemed for services with third-party merchants. Revenues are presented net of the amounts due to the third-party merchants for fulfilling the underlying services and an estimated amount for future refunds. In the second quarter of 2020, the Company expanded its vouchers refund policy in response to pandemic travel restrictions to fully refundable until the voucher expires or is redeemed by the customer. This refund policy has mostly been adjusted as of April 1, 2022, back to fully refundable within fourteen days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable. Certain merchant contracts allow the Company to retain the proceeds from unredeemed vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records the estimate as revenues in the same period.

Jack’s Flight Club revenue is generated from paid subscriptions by members. Subscription options are quarterly, semi-annually, and annually. We recognize the revenue on a pro-rated basis based upon the subscription option.

Commission revenue related to hotel platform is recognized ratably over the period of guest stay, net of an allowance for cancellations based upon historical patterns. For arrangements that are for the booking of non-cancelable reservations where the Company’s performance obligation is deemed to be the successful booking of a hotel reservation, we record revenue for the commissions upon completion of the hotel booking.

The Company’s contracts with customers may include multiple performance obligations in which the Company allocates revenues to each performance obligation based upon its standalone selling price. The Company determines standalone selling price based on its overall pricing objectives, taking into consideration the type of services, geographical region of the customers, normal rate card pricing and customary discounts. Standalone selling price is generally determined based on the prices charged to customers when the product is sold separately.

The Company relies upon the following practical expedients and exemptions allowed for in the ASC 606. The Company expenses sales commissions when incurred because the amortization period would be one year or less. These costs are recorded in sales and marketing expenses. In addition, the Company does not disclose the value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b) contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.

Deferred revenue primarily consists of customer prepayments and undelivered performance obligations related to the Company’s contracts with multiple performance obligations. As of December 31, 2022, $1.2 million was recorded as deferred revenue for Jack's Flight Club, of which $985,000 was recognized in the six months ended June 30, 2023, $981,000 was recorded as deferred revenue for Travelzoo North America and Travelzoo Europe, of which $797,000 was recognized as revenue in the six months ended June 30, 2023. As of June 30, 2023, the deferred revenue balance was $2.7 million, of which $1.8 million was for Jack's Flight Club and the remaining $861,000 was for Travelzoo North America and Travelzoo Europe.

Reserve for Refunds to Members

The Company records an estimated reserve for refunds to members based on our historical experience at the time revenue is recorded for Local Deals and Getaways voucher sales. 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.

For publishing revenue, we recognize revenue upon delivery of the emails and delivery of the clicks, over the period of the placement of the advertising. Insertion orders for publishing revenue are typically for periods between one month and twelve months and are not automatically renewed. For Getaways vouchers, we recognize a percentage of the face value of the vouchers upon the sale of the vouchers. Merchant agreements for Getaways advertisers are typically for periods between twelve months and twenty-four months and are not automatically renewed. Since the second quarter of 2020, the Company expanded its voucher refund policy to fully refundable until the voucher expires or is redeemed by the customer. This refund policy has been adjusted starting April 1, 2022, back to fully refundable within fourteen days of purchase unless a surcharge is paid at the time of the voucher purchase for the right to be fully refundable. The expiration dates of vouchers range between July 2023 through December 2025 with the majority of vouchers expiring during 2023; provided, that these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration. The revenues generated from Local Deals vouchers and entertainment offers are based upon a percentage of the face value of the vouchers, commission on actual sales or a listing fee based on audience reach. For Local Deals vouchers, we recognize a percentage of the face value of vouchers upon the sale of the vouchers. The Company estimated the refund reserve by using historical and current refund rates by product and by merchant location to calculate the estimated future refunds. As of June 30, 2023, the Company had approximately $6.0 million of unredeemed vouchers that had been sold through June 30, 2023, representing the Company’s commission earned from the sale. The Company had estimated a refund liability of $572,000 for these unredeemed vouchers as of June 30, 2023, which is recorded as a reduction of revenues and is reflected as a current liability in accrued expenses and other on the condensed consolidated balance sheet. As of December 31, 2022, the Company had approximately $8.1 million of unredeemed vouchers that had been sold through 2022 representing the Company’s commission earned from the sale and estimated a refund liability of $1.3 million for these unredeemed vouchers as of December 31, 2022, which was recorded as a reduction of revenues and was reflected as a current liability in accrued expenses and other on the condensed consolidated balance sheet. The Company has recorded Merchant Payables of $23.9 million as of June 30, 2023 related to unredeemed vouchers. Insertion orders and merchant agreements for Local Deals are typically for periods between one month and twelve months and are not automatically renewed except for merchant contracts in foreign locations. 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. Specifically, if the financial condition of our advertisers, the business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our members, additional reserves for refunds to members may be required and may adversely affect future revenue as the liability is recorded against revenue.

We record a liability associated with estimated future refunds in accrued expenses on the condensed consolidated balance sheets. Estimated member refunds that are determined to be recoverable from the merchant are recorded in the condensed consolidated statements of operations as a reduction to revenue. Estimated member refunds that are determined not to be recoverable from the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported results of operations could differ from the amount we previously accrued.

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.

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 whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

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 the carrying value of goodwill may not be recoverable. In testing goodwill for impairment, the Company

first uses a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs an impairment test by comparing the book value of net assets to the fair value of the reporting units. The Company performed its annual impairment test as of October 31, 2022 and no impairment charge was identified in connection with the annual impairment test. The Company did not identify any indicators of impairment during the six months ended June 30, 2023.

Operating Leases

The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease payments used to determine the operating lease assets may include lease incentives and stated rent increases. The Company does not include options to extend or terminate until it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the 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 unaudited condensed consolidated balance sheets.

The Company’s leases are reflected in operating lease ROU assets, operating lease liabilities and long-term operating lease liabilities in our unaudited condensed consolidated balance sheets. The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company also has a real estate lease agreement which is subleased to a third party. The Company recognizes sublease income in “Other income, net”, on a straight-line basis over the lease term in its condensed consolidated statements of operations.

Certain Risks and Uncertainties

The Company’s business is subject to risks associated with its ability to attract and retain advertisers and offer products or services on compelling terms to our members. The outbreak of coronavirus (COVID-19) in 2020 had an unprecedented impact on the global travel and hospitality industries. Governmental authorities implemented numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shut-downs. 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. Many of the Company’s advertising partners paused, canceled, and/or stopped advertising. Additionally, there were significant levels of cancellations for the Company’s hotel partners and travel package partners and refund requests for our vouchers. Now that COVID-19 and its lingering effects have mostly subsided, we are seeing many of our advertisers and partners return to advertising with us and have altered our policies again to align with the changing environment (including reverting to a 14-day return window for vouchers 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 global pandemic on the Company’s future revenues, results of operations, cash flows, liquidity, or financial condition.

The Company’s cash, cash equivalents and accounts 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 accounts receivables are derived from revenue earned from customers located in the U.S. and internationally. As of June 30, 2023 and December 31, 2022, the Company did not have any customers that accounted for 10% or more of accounts receivables.

As of June 30, 2023, the Company had merchant payables of $23.9 million related to the sale of vouchers. In the Company’s financial statements presented in this 10-Q report, following GAAP accounting principles, 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 $4.3 million. Payables to merchants are generally due upon redemption of vouchers. The vouchers expire between July 2023 through December 2025 with the majority of vouchers expiring during 2023; provided, that these expiration dates may sometimes be extended on a case-by-case basis and final payment upon expiration may not be due for up to a year after expiration. Management believes that redemptions may be delayed for international vouchers in the current environment. Based on current projections of redemption activity, management expect that cash on hand as of June 30, 2023 will be sufficient to provide for working capital needs for at least the next twelve months. However, if redemption activity is more accelerated, if the Company’s business is not profitable, or if the Company’s planned targets for cash flows from operations are not met, the Company may need to obtain additional financing to meet its working capital needs in the future. The Company believes that it could obtain additional financing if needed, but there can be no assurance that financing will be available on terms that are acceptable to the Company, if at all.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents consist of highly liquid investments with maturities of three months or less on 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 for leases.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the total amounts shown in the unaudited condensed consolidated statements of cash flows:


	June 30,		December 31,
	2023		2022
Cash and cash equivalents	$	19,513	$	18,693
Restricted cash	675		675
Cash, cash equivalents and restricted cash–discontinued operations	9		10
Total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows	$	20,197	$	19,378

The Company’s restricted cash was included in noncurrent assets as of June 30, 2023 and December 31, 2022.

Note 2: Net Income Per Share

Basic net income 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):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Numerator:
Net income attributable to Travelzoo—continuing operations	$	2,624	$	1,018	$	6,299	$	3,388
Net loss attributable to Travelzoo—discontinued operations	$	2	$	10	$	—	$	(1)
Denominator:
Weighted average common shares—basic	15,275		12,513		15,485		12,285
Effect of dilutive securities: stock options	62		124		72		306
Weighted average common shares—diluted	15,337		12,637		15,557		12,591

Income per share—basic
Continuing operations	$	0.17	$	0.08	$	0.41	$	0.28
Discontinued operations	—		—		—		—
Net income per share —basic	$	0.17	$	0.08	$	0.41	$	0.28

Income per share—diluted
Continuing operations	$	0.17	$	0.08	$	0.40	$	0.27
Discontinued operations	—		—		—		—
Net income per share—diluted	$	0.17	$	0.08	$	0.40	$	0.27

For each of the three and six months ended June 30, 2023 and 2022, options to purchase 750,000 shares of common stock were not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

Note 3: Acquisitions

Stock Purchase Agreement (“SPA”) between Travelzoo and Azzurro Capital Inc., a Related-Party

In connection with the development of Travelzoo META, the Company acquired MTE, a wholly owned subsidiary of Azzurro, and also completed a private placement of newly issued shares. 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 as of the time of this transaction, and Azzurro and Ralph Bartel owned as of December 31, 2022 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 Travelzoo to Azzurro, in exchange for certain consideration, and on 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 $15.2 million. The purchase price was paid as follows: (a) $1.0 million in cash paid on the Closing Date; (b) $4.8 million paid in the form of a promissory note issued on the Closing Date and payable by June 30, 2023 with accrued interest of 12%; and (c) the transfer to the Company of all outstanding capital stock of MTE, which transfer was effected pursuant to a merger of MTE with a wholly-owned subsidiary of the Company on the Closing Date. The Company records the $4.8 million promissory note as Note receivable from shareholder in the stockholders’ equity section on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022. As of June 30, 2023, Azzurro paid the interest of $285,000, but has not yet paid the principal amount of the note. The Company submitted a letter to Azzurro seeking payment and the parties are in the process of negotiating a payment plan. Should satisfactory terms not be agreed for a payment plan, the Company shall have the right to pursue the shares serving as collateral under the promissory note.

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, 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, that 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 carry forwards 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 condensed consolidated financial statements.

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) Ltd, Sucursal en España Acquired Secret Escapes Limited’s Spanish Business Unit

On March 3, 2022, Travelzoo (Europe) Ltd, Sucursal en Espana, 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, the Company’s largest shareholder. 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 Escape 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.

Acquisition of Jack’s Flight Club

Travelzoo acquired 60% of Jack’s Flight Club for an aggregate purchase price of $12.0 million in January 2020. The strategic rationale for the Jack’s Flight Club acquisition was to expand Jack’s Flight Club’s membership to Travelzoo members worldwide, so the members from Travelzoo could also sign up to receive offers from Jack’s Flight Club. The Company

renegotiated with Jack’s Flight Club in June 2020 and reached a negotiated settlement which resulted a gain in “General and administrative expenses” for the partial forgiveness for the promissory note issued for the acquisition.

The acquisition has been accounted for using the acquisition method in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the total purchase consideration of the acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets is recorded as goodwill. Accordingly, the Company allocated $3.5 million to customer relationships, $2.5 million to trade name and $660,000 to non-compete agreements and the remaining $13.1 million to goodwill. The acquisition related costs were not significant and were expensed as incurred. Jack’s Flight Club’s result have been included in the accompanying financial statements from their the dates of acquisition. The Company performed an annual impairment test in October did not identify any further indicators of impairment as of December 31, 2022. The Company also did not identify any indicators of impairment during the six months ended June 30, 2023.

Intangible Assets

The following table represents the fair value and estimated useful lives of intangible assets from the above acquisitions (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
Intangible assets (Secret Escape Spain member database)	445		3.0
Intangible assets (Secret Escape 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. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets at fair value.

The goodwill assessment was performed by comparing the fair value of the reporting units to its 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 market value approach, using Level 3 inputs. The indefinite-lived intangible assets assessment was valued using the relief-from-royalty method, which includes unobservable inputs, classified as Level 3, including projected revenues and approximately 5% royalty rate.

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 in the first quarter of 2020. No impairment charge was identified and recorded for 2021. 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 in the fourth quarter of 2022. The revenue for Jack’s Flight Club was negatively impacted by the pandemic and did not meet the forecasted growth expectation. No impairment charge was identified and recorded for goodwill in 2022.

The following table represents the activities of intangible assets for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Jack’s Flight Club		Secret Escape Spain		Secret Escape U.S.
Intangible assets—January 1, 2022	3,426
Acquisitions—March 2022	—		445		1,751
Amortization of intangible assets with definite lives	(226)		(12)		(195)
Intangible assets—March 31, 2022	3,200		433		1,556
Amortization of intangible assets with definite lives	(217)		(34)		(194)
Intangible assets—June 30, 2022	2,983		399		1,362
Amortization of intangible assets with definite lives	(216)		(30)		(194)
Intangible assets—September 30, 2022	2,767		369		1,168
Amortization of intangible assets with definite lives	(216)		(42)		(195)
Impairment of trade name—December 31, 2022	(200)		—		—
Intangible assets—December 31, 2022	2,351		327		973
Amortization of intangible assets with definite lives	(168)		(39)		(195)
Intangible assets—March 31, 2023	2,183		288		778
Amortization of intangible assets with definite lives	(158)		(36)		(194)
Intangible assets—June 30, 2023	$	2,025	$	252	$	584

Amortization expense for acquired intangibles was $388,000 and $445,000 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense for acquired intangibles was $790,000 and $878,000 for the six months ended June 30, 2023 and 2022, respectively.

Expected future amortization expense of acquired intangible assets as of June 30, 2023 is as follows (in thousands):


Years ending December 31,
2023 (excluding the six months ended June 30, 2023)	777
2024	588
2025	46
	$	1,411

The Company performed its annual impairment testing of Trade name as of October 31, 2022 using a relief from royalty method. As previously discussed, the Company’s impairment test indicated that Jack’s Flight Club’s indefinite lived intangible assets (“Trade name”) was impaired for $200,000 in 2022. No impairment was identified in the six months ended June 30, 2023. As of June 30, 2023, the carrying value of the Trade name was $1.5 million.

Note 4: 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 the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it. Accruals for legal contingencies were not material as of June 30, 2023 and December 31, 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 the Company’s principal shareholder, Ralph Bartel. In 2002, Travelzoo.com Corporation (“Netsurfers”) was merged into the Company. Under and subject to the terms of the merger agreement, holders of promotional shares of 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 the Company in exchange for each share of common stock of 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 Netsurfers promotional shares as further described below.

From 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United States related to the above unexchanged promotional shares and completed settlements with all states. Although the Company has settled the unclaimed property claims with all states, the Company may still receive inquiries from certain potential Netsurfers promotional shareholders that had not provided their state of residence to the Company by April 25, 2004. 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 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 which their residence was unknown to the Company. The Company did not make material payments for the six months ended June 30, 2023 and 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 Netsurfers 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 Netsurfers.

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 eight years. Refer to Note 11 for leases as of June 30, 2023. The Company maintained standby letters of credit (“LOC”) serve as collateral issued to the landlords. The LOCs are collateralized with cash which is included in the line item “Restricted cash” in the Consolidated Balance Sheets.

The Company has purchase commitments aggregating approximately $617,000 as of June 30, 2023, which represent the minimum obligations the Company has under agreements with certain suppliers. 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.

Note 5: Income Taxes

In determining the quarterly provisions for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on our expected annual income and statutory tax rates in the U.S., Canada, and the U.K. The Company’s effective tax rate from continuing operations was 29% and 47%, respectively, for the three months ended June 30, 2023 and 2022. The Company’s effective tax rate for the three months ended June 30, 2023 changed from the three months ended June 30, 2022 primarily due to a decrease in non-deductible stock compensation in the three months ended June 30, 2023. The Company’s effective tax rate was 28% and 36%, respectively, for the six months ended June 30, 2023 and 2022. Our effective tax rate changed for the six months ended June 30, 2023 from the six months ended June 30, 2022 primarily due to a decrease in non-deductible stock compensation in the six months ended June 30, 2023.

As of June 30, 2023, the Company is permanently reinvested in certain of its 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 attributed 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 $724,000.

The Company maintains liabilities for uncertain tax positions. As of June 30, 2023, the Company had approximately $16.9 million in total unrecognized tax benefits, of which up to $16.4 million would favorably affect the Company’s effective income tax rate if realized.

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. As of June 30, 2023 and December 31, 2022, the Company had approximately $602,000 and $704,000 in accrued interest and penalties, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states and foreign jurisdictions. The Company is subject to U.S. federal and certain state tax examinations for certain years after 2018 and forward and is subject to California tax examinations for years after 2017.

Note 6: Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Beginning balance	$	(4,825)	$	(3,931)	$	(4,905)	$	(3,793)
Other comprehensive income (loss) due to foreign currency translation, net of tax	135		(602)		215		(740)
Ending balance	$	(4,690)	$	(4,533)	$	(4,690)	$	(4,533)

There were no amounts reclassified from accumulated other comprehensive loss for the three and six months ended June 30, 2023 and 2022. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.

Note 7: Stock-Based Compensation 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 using an option-pricing model. The value of the portion of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite service periods in the Company’s condensed consolidated statements of operations.

In September 2015, pursuant to an executed Nonqualified Stock Option Agreement, the Company granted its Global Chief Executive Officer, Holger Bartel, options to purchase 400,000 shares of common stock of the Company, with an exercise price of $8.07 and quarterly vesting beginning on March 31, 2016 (the “2015 Option Agreement”). The 2015 Option Agreement expires in September 2025. The options are now fully vested and the stock-based compensation related to these options was fully expensed. In October 2017, pursuant to an executed Option Agreement, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock, with an exercise price of $6.95 and quarterly vesting beginning on March 31, 2018 (the “2017 Option Agreement”). The 2017 Option Agreement expires in 2027. During 2019, 250,000 options granted pursuant to the 2017 Option Agreement were exercised by Mr. Bartel. The remaining 150,000 options are fully vested and the stock-based compensation related to these options was fully expensed. In September 2019, the Company granted Mr. Bartel options to purchase 400,000 shares of common stock subject to shareholder approval, with an exercise price of $10.79 and quarterly vesting beginning on March 31, 2020 and ending on December 31, 2021 (the “2019 Option Agreement” and together with the 2015 Option Agreement and the 2017 Option Agreements, the “Bartel Option Agreements”). The 2019 Option Agreement expires in 2024. All options granted pursuant to the 2015 Option Agreement and 2017 Option Agreement have been exercised.

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. 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 second quarter of 2020. In 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 during the three months ended June 30, 2022. The Company received aggregate cash proceeds of $1.9 million. All options granted pursuant to the 2019 Option Agreement have been exercised.

In September 2019, pursuant to executed Option Agreements, the Company granted six 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 in total 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 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. During the three months ended June 30, 2023, 50,000 options were exercised and 18,098 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. As of June 30, 2023, 100,000 options were outstanding and 25,000 of these options were vested. Total stock-based compensation related to these option grants of $72,000 was recorded in general and administrative expenses for each of the three months ended June 30, 2023 and 2022. Total stock-based compensation related to these option grants of $145,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2023 and 2022. As of June 30, 2023, there was approximately $48,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 0.2 years.

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, 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. Total stock-based compensation related to these option grants of $385,000 was recorded in general and administrative expenses for the three months ended March 31, 2022. Stock-based compensation related to this grant was fully expensed by the end of the first quarter of 2022. During the three months ended June 30, 2023, the remaining 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.

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 the 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 the cashless exercises or net settlement with respect to the option exercise price which were approved by Travelzoo’s Board of Directors. During the three months ended June 30, 2023, 50,000 options were exercised and 20,075 shares of common stock were issued as the result of the cashless exercises which were approved by Travelzoo’s Board of Directors. As of June 30, 2023, 25,000 options were outstanding and none of these options were vested. Total stock-based compensation related to these option grants of $24,000 and $49,000 was recorded in general and administrative expenses for the three months ended June 30, 2023 and 2022, respectively. Total stock-based compensation related to these option grants of $49,000 and $98,000 was recorded in general and administrative expenses for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $74,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 0.8 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 June 30, 2023, 50,000 options were outstanding and 25,000 of these options were vested. Total stock-based compensation related to this option grant of $36,000 was recorded in general and administrative expenses for each of the three months ended June 30, 2023 and 2022, respectively. Total stock-based compensation related to this option grant of $72,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $215,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over the next 1.5 years.

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 June 30, 2023, 600,000 options were outstanding and 450,000 of these options were vested. Total stock-based compensation related to this option grant of $216,000 and $433,000 was recorded in general and administrative expenses for the three months ended June 30, 2023 and 2022, respectively. Total stock-based compensation related to this option grant of $433,000 was recorded in general and administrative expenses for each of the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was approximately $433,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 0.5 years.

In June 2022, the Company granted an employee options to purchase 100,000 shares of common stock with an exercise price of $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 the time condition is met, the time condition may be extended by one quarter up to three times. The options expire in June 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. As of June 30, 2023, 100,000 options were outstanding. Total stock-based compensation related to this option grant of $30,000 and $60,000 was recorded in sales and marketing expenses for the three and six months ended June 30, 2023 and thus 16,666 shares were vested. As of June 30, 2023, there was approximately $308,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 2 years.

In March 2023, the Company granted its General Counsel and Head of Global Functions, Christina Sindoni Ciocca, options to purchase 200,000 shares of common stock of the Company, with an exercise price of $4.96 and vesting 12.5% every six months over four years beginning on June 30, 2023 and ending on December 31, 2026. This grant was approved at the Annual Meeting of Stockholders held in June 2023. The options expire in March 2025. As of June 30, 2023, 200,000 options were outstanding and 25,000 of these options were vested. Total stock-based compensation related to this option grant of $52,000 and $70,000 was recorded in general and administrative expenses for the three and six months ended June 30, 2023. As of June 30, 2023, there was approximately $487,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected to be recognized over 3.5 years.

Note 8: Stock Repurchase Program

The Company’s stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation and assist with capital allocation. Management is allowed discretion in the execution of the repurchase program based upon market conditions and consideration of capital allocation.

In June 2022, the Company announced that its Board of Directors approved a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the Company’s outstanding common stock. In 2022, the Company repurchased 306,375 shares of common stock for an aggregate purchase price of $1.6 million, which were recorded as part of treasury stock as of December 31, 2022.

During the three and six months ended June 30, 2023, the Company repurchased 658,938 shares and 693,625 shares of common stock, respectively, for an aggregate purchase price of $4.7 million and $4.9 million, respectively, which were retired and recorded as a reduction of additional paid-in capital. This stock repurchase program was completed in the second quarter of 2023.

Note 9: Segment Reporting and Significant Customer Information

The Company determines its reportable segments based upon the Company’s chief operating decision maker managing the performance of the business. Historically, the Company managed its business geographically and operated in three reportable segments including Asia Pacific, Europe and North America. During the three months ended March 31, 2020, the Company classified the results of its Asia Pacific segment as discontinued operations in its condensed consolidated financial statements for current and prior periods presented. On January 13, 2020, Travelzoo agreed to the SPA with the Sellers of Jack’s Flight Club to purchase 60% of the Shares. Upon acquisition, the Company’s chief operating decision maker reviewed and evaluated Jack’s Flight Club as a separate segment. In 2020, Travelzoo entered into royalty-bearing licensing agreements with local licensees for Australia, Japan, New Zealand, and Singapore. Travelzoo granted licensees the exclusive use of Travelzoo’s brand, but continuously own the existing members as the licensor. In March 2022, the Company announced the development of Travelzoo META, a subscription service that intends to provide members with exclusive access to innovative, high quality Metaverse travel experiences. On December 30, 2022, the Company acquired Metaverse Travel Experiences, Inc., now Metaverse Travel Experiences, LLC (“MTE”), a Metaverse experience scouting and development business to support Travelzoo META. The Company’s chief operating decision maker viewed licensing and Travelzoo META business as New Initiatives and reviewed and evaluated New Initiatives as a separate segment. The Company currently has four reportable operating segments: Travelzoo North America, Travelzoo Europe, Jack’s Flight Club and New Initiatives. Travelzoo North America consists of the Company’s operations in Canada and the U.S. Travelzoo Europe consists of the Company’s operations in France, Germany, Spain, and the U.K. Jack’s Flight Club consists of subscription revenue from premium members to access and receive flight deals from Jack’s Flight Club via email or via Android or Apple mobile applications. New Initiatives consists of Travelzoo licensing business and Travelzoo META subscription service and scouting and development business. Prior periods have been reclassified to conform with the current presentation.

Management relies on an internal management reporting process that provides revenue and segment operating profit (loss) for making financial decisions and allocating resources. Management believes that segment revenues and operating profit (loss) are appropriate measures of evaluating the operational performance of the Company’s segments.

The following is a summary of operating results by business segment (in thousands):


Three Months Ended June 30, 2023	Travelzoo North America		Travelzoo Europe		Jack’s Flight Club		New Initiatives		Consolidated
Revenues from unaffiliated customers	$	13,642	$	6,462	$	1,011	$	13	$	21,128
Intersegment revenues (expenses)	491		(575)		84		—		—
Total net revenues	14,133		5,887		1,095		13		21,128
Operating profit (loss)	$	3,753	$	(239)	$	97	$	(338)	$	3,273


Three Months Ended June 30, 2022	Travelzoo North America		Travelzoo Europe		Jack’s Flight Club		New Initiatives		Consolidated
Revenues from unaffiliated customers	$	12,337	$	4,395	$	952	$	5	$	17,689
Intersegment revenues (expenses)	41		(41)		—		—		—
Total net revenues	12,378		4,354		952		5		17,689
Operating profit (loss)	$	3,272	$	(1,472)	$	161	$	(180)	$	1,781