Travelzoo Earnings 2020-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

tzoo-20200630

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, 2020


☐			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: (212) 484-4900

_________________________________________________________________________________

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 and posted on its corporate website, if any, 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

¨ (Do not check if a smaller reporting company)

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 7, 2020 was 11,310,431 shares.

TRAVELZOO

Table of Contents


PART I—FINANCIAL INFORMATION			Page

Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019			4
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019			5
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019			7
Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2020 and 2019			8
Notes to Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			41

PART II—OTHER INFORMATION

Item 1. Legal Proceedings			42

Item 1A. Risk Factors			42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42

Item 6. Exhibits			43
Signature			44

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

TRAVELZOO

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	25,563	$	18,743
Accounts receivable, less allowance for doubtful accounts of $2,813 and $1,106 as of June 30, 2020 and December 31, 2019, respectively	4,031		11,209
Prepaid income taxes	—		989
Deposits	112		105
Prepaid expenses and other	1,173		2,288
Assets from discontinued operations	590		3,961
Total current assets	31,469		37,295
Deposits and other	829		572
Deferred tax assets	4,341		2,051
Restricted cash	1,138		1,135
Investment in WeGo	2,152		2,484
Operating lease right-of-use assets	9,929		8,140
Property and equipment, net	1,689		2,861
Intangible assets, net	5,200		—
Goodwill	10,944		—
Total assets	$	67,691	$	54,538
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	29,674	$	19,349
Accrued expenses and other	5,436		6,281
Deferred revenue	2,779		786
Operating lease liabilities	4,440		4,847
Promissory notes payable	1,700		—
Income tax payable	773		914
Liabilities from discontinued operations	1,456		3,135
Total current liabilities	46,258		35,312
PPP notes payable	3,663		—
Deferred tax liabilities	1,044		—
Long-term operating lease liabilities	12,062		7,920
Other long-term liabilities	457		443
Total liabilities	63,484		43,675
Commitments and contingencies
Non-controlling interest	4,508		—
Stockholders’ equity (deficit):
Common stock, $0.01 par value (20,000 shares authorized; 11,310 and 11,479 shares issued and outstanding as of June 30, 2020 and December 31, 2019)	113		115
Additional paid in capital	4,031		—
Retained earnings	221		14,200
Accumulated other comprehensive loss	(4,666)		(3,452)
Total stockholders’ equity (deficit)	(301)		10,863
Total liabilities and stockholders’ equity (deficit)	$	67,691	$	54,538

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,
	2020		2019		2020		2019
Revenues	$	7,004	$	26,606	$	27,331	$	55,766
Cost of revenues	2,141		2,672		4,844		5,537
Gross profit	4,863		23,934		22,487		50,229
Operating expenses:
Sales and marketing	4,288		13,104		17,382		26,638
Product development	566		1,763		1,994		3,422
General and administrative	6,642		4,914		12,164		9,446
Impairment of intangible assets and goodwill	—		—		2,920		—
Total operating expenses	11,496		19,781		34,460		39,506
Operating income (loss)	(6,633)		4,153		(11,973)		10,723
Other income (loss), net	(179)		(29)		(185)		16
Income (loss) from continuing operations before income taxes	(6,812)		4,124		(12,158)		10,739
Income tax expense (benefit)	(1,309)		1,066		(1,826)		2,736
Income (loss) from continuing operations	(5,503)		3,058		(10,332)		8,003
Income (loss) from discontinued operations, net of taxes	(795)		(1,730)		(3,714)		(3,555)
Net income (loss)	(6,298)		1,328		(14,046)		4,448
Net income (loss) attributable to non-controlling interest	(108)		—		(1,247)		—
Net income (loss) attributable to Travelzoo	$	(6,190)	$	1,328	$	(12,799)	$	4,448

Net income (loss) attributable to Travelzoo—continuing operations	$	(5,395)	$	3,058	$	(9,085)	$	8,003
Net income (loss) attributable to Travelzoo—discontinued operations	$	(795)	$	(1,730)	$	(3,714)	$	(3,555)

Income (loss) per share—basic
Continuing operations	$	(0.48)	$	0.25	$	(0.80)	$	0.67
Discontinued operations	$	(0.07)	$	(0.14)	$	(0.33)	$	(0.30)
Net income (loss) per share —basic	$	(0.55)	$	0.11	$	(1.13)	$	0.37

Income (loss) per share—diluted
Continuing operations	$	(0.48)	$	0.25	$	(0.80)	$	0.66
Discontinued operations	$	(0.07)	$	(0.14)	$	(0.33)	$	(0.30)
Net income (loss) per share—diluted	$	(0.55)	$	0.11	$	(1.13)	$	0.36

Shares used in per share calculation from continuing operations—basic	11,310		12,003		11,375		11,959
Shares used in per share calculation from discontinued operations—basic	11,310		12,003		11,375		11,959

Shares used in per share calculation from continuing operations—diluted	11,310		12,278		11,375		12,251
Shares used in per share calculation from discontinued operations—diluted	11,310		12,003		11,375		11,959

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Net income (loss)	$	(6,298)	$	1,328	$	(14,046)	$	4,448
Other comprehensive income (loss):
Foreign currency translation adjustment	(343)		74		(1,214)		(15)
Total comprehensive income (loss)	$	(6,641)	$	1,402	$	(15,260)	$	4,433

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2020		2019
Cash flows from operating activities:
Net income (loss)	$	(14,046)	$	4,448
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,218		663
Stock-based compensation	4,054		482
Deferred income tax	(1,761)		345
Impairment of intangible assets and goodwill	2,920		—
Loss on long-lived assets	437		—
Loss on equity investment in WeGo	336		397
Gain on promissory notes payable settlement	(1,500)		—
Net foreign currency effect	(456)		(26)
Provision for loss on accounts receivable and other	2,427		26
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	6,183		(2,779)
Prepaid income taxes	989		(428)
Prepaid expenses and other	1,420		239
Accounts payable	10,309		(2,788)
Accrued expenses and other	(1,380)		1,291
Deferred revenue	1,249		—
Income tax payable	(67)		(96)
Other liabilities	1,091		(174)
Net cash provided by operating activities	13,423		1,600
Cash flows from investing activities:
Acquisition of business, net of cash acquired	(679)		—
Other investments	(430)		(673)
Purchases of property and equipment	(203)		(201)
Net cash used in investing activities	(1,312)		(874)
Cash flows from financing activities:
Repurchase of common stock	(1,205)		(6,460)
Payment of promissory notes payable	(7,800)		—
Proceeds from PPP notes payable	3,663		—
Proceeds from exercise of stock options, net of taxes paid for net share settlement	—		1,712
Net cash used in financing activities	(5,342)		(4,748)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(511)		5
Net increase (decrease) in cash, cash equivalents and restricted cash	6,258		(4,017)
Cash, cash equivalents and restricted cash at beginning of period	20,710		19,461
Cash, cash equivalents and restricted cash at end of period	$	26,968	$	15,444
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	482	$	2,859
Right-of-use assets obtained in exchange for lease obligations—operating leases	$	3,207	$	2,802
Cash paid for amounts included in the measurement of lease liabilities	$	1,622	$	2,557
Non-cash investing and financing activities:
Issuance of promissory notes to the sellers of Jack's Flight Club	$	11,000	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balances, January 1, 2020	11,479	$	115	$	—	$	14,200	$	(3,452)	$	10,863
Stock-based compensation expense	—	—		23		—		—		23
Repurchase and retirement of common stock	(169)	(2)		(23)		(1,180)		—		(1,205)
Foreign currency translation adjustment	—	—		—		—		(871)		(871)
Net loss–Travelzoo	—	—		—		(6,609)		—		(6,609)
Balances, March 31, 2020	11,310	113		—		6,411		(4,323)		2,201
Stock-based compensation expense	—	—		4,031		—		—		4,031
Foreign currency translation adjustment	—	—		—		—		(343)		(343)
Net loss—Travelzoo	—	—		—		(6,190)		—		(6,190)
Balances, June 30, 2020	11,310	$	113	$	4,031	$	221	$	(4,666)	$	(301)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balances, January 1, 2019	11,962	$	120	$	—	$	18,153	$	(4,214)	$	14,059
Stock-based compensation expense	—	—		163		—		—		163
Repurchase and retirement of common stock	(100)	(1)		(137)		(1,452)		—		(1,590)
Taxes paid for net share settlement of equity awards	3	—		(26)		—		—		(26)
Foreign currency translation adjustment	—	—		—		—		(89)		(89)
Net income	—	—		—		3,120		—		3,120
Balances, March 31, 2019	11,865	119		—		19,821		(4,303)		15,637
Stock-based compensation expense	—	—		319		—		—		319
Repurchase and retirement of common stock	(250)	(2)		(2,055)		(2,812)		—		(4,869)
Exercise of stock options and taxes paid for net share settlement of equity awards	250	2		1,736		—		—		1,738
Foreign currency translation adjustment	—	—		—		—		74		74
Net income	—	—		—		1,328		—		1,328
Balances, June 30, 2019	11,865	$	119	$	—	$	18,337	$	(4,229)	$	14,227

See accompanying notes to unaudited condensed consolidated financial statements.

TRAVELZOO

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Summary of Significant Accounting Policies

(a) The Company and Basis of Presentation

Travelzoo® is a global Internet media company. We provide our 30 million members insider deals and one-of-a-kind experiences personally reviewed by one of our deal experts around the globe. We have our finger on the pulse of outstanding travel, entertainment, and lifestyle experiences. For over 20 years we have worked in partnership with more than 5,000 top travel suppliers—our long-standing relationships give Travelzoo members access to irresistible deals. Travelzoo's revenues are generated primarily from advertising fees.

Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top 20® email newsletter, the Newsflashemail alert service, and the Travelzoo Network, a network of third-party websites that list travel deals published by Travelzoo (“Travelzoo” or the "Company"). Our Travelzoo website includes Local Deals and Getaways listings that allow our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants. We receive a percentage of the face value of the voucher from the local businesses.

APAC Exit

In March 2020, Travelzoo exited its loss-making Asia Pacific business. The Company’s Asia Pacific business was classified as discontinued operations at March 31, 2020. Prior periods have been reclassified to conform with the current presentation. On June 16, 2020, in connection with its Asia Pacific exit plan, the Company completed a sale of 100% of the outstanding capital stock of Travelzoo Japan K.K to Mr. Hajime Suzuki, the General Manager of Japan (the "Buyer") for consideration of JPY 1. The Company recorded approximately $128,000 loss upon disposal of Japan in the Condensed Consolidated Financial Statements during the three and six months ended June 30, 2020. The parties also entered into a License Agreement, whereby the Buyer obtained a license to use intellectual property from Travelzoo exclusively in Japan in exchange for quarterly royalty payments based on revenue over a 5 year term, with an option to renew. An interest free loan was provided to the Buyer for JPY 46.0 million (approximately $430,000) to be repaid over 3 years which the Company recorded as other assets on the unaudited condensed consolidated balance sheet as of June 30, 2020.

WeGo Investment

The Company has a minority investment in weekengo GmbH ("WeGo"). WeGo is a technology company which provides an app and a search engine for spontaneous travelers looking for short getaways. The Company accounts for this private company investment using the equity method of accounting by recording its share of the results of WeGo in “Other income (expense)”, net on a one-quarter lag basis. In accounting for the initial investment, the Company allocated $1.0 million of its purchase price to tangible assets and allocated approximately $485,000 of the purchase price to technology-related intangible assets to be amortized over a three-year life. The remaining $1.5 million of the purchase price was allocated to goodwill.

In February 2020, Travelzoo signed an amended investment agreement (the “Investment Agreement”) with WeGo and agreed to invest an additional $1.7 million when WeGo meets certain performance targets. The original Investment Agreement with WeGo was executed in April 2018. At that time, Travelzoo invested $3.0 million in WeGo for a 25% ownership interest. In April 2019, the Company invested an additional $673,000 in WeGo and increased the Company's ownership interest to 26.6%.

As of June 30, 2020, WeGo has not met these performance targets and no additional investment has been made by the Company. In connection with the Investment Agreement, WeGo signed an insertion order for $2.1 million in advertising services with Travelzoo in April 2018. The Company's advertising services provided to WeGo in the three months ended June 30, 2020 and 2019 were $3,000 and $239,000, respectively. The Company's advertising services provided to WeGo in the six months ended June 30, 2020 and 2019 were $360,000 and $794,000, respectively.

During the three and six months ended June 30, 2020, the Company recorded $106,000 and $333,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. During the three and six months ended June 30, 2019, the Company recorded $198,000 and $409,000 for its share of WeGo losses, amortization of basis differences and currency translation adjustment. This equity method investment is reported as a long-term investment on the Company's condensed consolidated balance sheets.

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, 2020, Jack’s Flight Club had 1.7 million subscribers. Jack’s Flight Club’s revenues are generated by subscription fees paid by members. In June 2020, the Company renegotiated certain aspects of that certain Stock Purchase Agreement, dated as of January 13, 2020 (the “SPA”), by and among Travelzoo, Jack’s Flight Club and the sellers party thereto (the “Sellers”) with the Sellers and reached a settlement for the outstanding Promissory Notes, dated as of January 13, 2020, by and between Travelzoo and each Seller (the “Promissory Notes”). See Note 3 to the unaudited condensed consolidated financial statements for further information.

PPP Loans

On April 24, 2020 and May 5, 2020, the Company received $3.1 million and $535,000, respectively, pursuant to loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the Small Business Association. The loans have a maturity of two (2) years from the disbursement of the funds and an interest rate of 1%. The PPP loan was recorded as long-term PPP notes payable on the unaudited condensed consolidated balance sheet as of June 30, 2020. Interest expense for the PPP notes payable was $7,000 for the six months ended June 30, 2020. The Company intends to use the funds from these loan only for the purposes included in the PPP, including payroll, employee benefits, and rent, and to apply for forgiveness of a portion of the loans in compliance with the CARES Act.

Ownership

Ralph Bartel, who founded the Company and who is a Director of the Company is the sole beneficiary of the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. (“Azzurro”). As of June 30, 2020, Azzurro is the Company's largest shareholder, holding approximately 39.5% of the Company's outstanding shares. Azzurro currently holds a proxy given to it by Holger Bartel that provides it with a total of

Price	11.38	EPS	1
Shares	12	P/E	22
MCap	138	P/FCF	72
Net Debt	-13	EBIT	11
TEV	125	TEV/EBIT	11
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-10
10-Q	2020-03-31	Filed 2020-06-25
10-K	2019-12-31	Filed 2020-03-20
10-Q	2019-09-30	Filed 2019-11-01
10-Q	2019-06-30	Filed 2019-08-09
10-Q	2019-03-31	Filed 2019-05-10
10-K	2018-12-31	Filed 2019-03-11
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-02
10-Q	2018-03-31	Filed 2018-05-10
10-K	2017-12-31	Filed 2018-03-16
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-03
10-Q	2017-03-31	Filed 2017-05-05
10-K	2016-12-31	Filed 2017-03-15
10-Q	2016-09-30	Filed 2016-11-03
10-Q	2016-06-30	Filed 2016-08-04
10-Q	2016-03-31	Filed 2016-05-05
10-K	2015-12-31	Filed 2016-03-14
10-Q	2015-09-30	Filed 2015-11-09
10-Q	2015-06-30	Filed 2015-07-23
10-Q	2015-03-31	Filed 2015-04-24
10-K	2014-12-31	Filed 2015-02-17
10-Q	2014-09-30	Filed 2014-10-23
10-Q	2014-06-30	Filed 2014-07-25
10-Q	2014-03-31	Filed 2014-04-25
10-K	2013-12-31	Filed 2014-02-12
10-Q	2013-09-30	Filed 2013-10-24
10-Q	2013-06-30	Filed 2013-07-25
10-Q	2013-03-31	Filed 2013-05-01
10-K	2012-12-31	Filed 2013-02-11
10-Q	2012-09-30	Filed 2012-10-26
10-Q	2012-06-30	Filed 2012-07-30
10-Q	2012-03-31	Filed 2012-04-30
10-K	2011-12-31	Filed 2012-02-21
10-Q	2011-09-30	Filed 2011-10-28
10-Q	2011-06-30	Filed 2011-08-04
10-Q	2011-03-31	Filed 2011-05-10
10-K	2010-12-31	Filed 2011-03-16
10-Q	2010-09-30	Filed 2010-11-09
10-Q	2010-06-30	Filed 2010-08-09
10-Q	2010-03-31	Filed 2010-05-10
10-K	2009-12-31	Filed 2010-03-16

8-K	2020-07-30	Earnings, Exhibits
8-K	2020-06-25
8-K	2020-06-22
8-K	2020-05-29
8-K	2020-05-29
8-K	2020-05-11
8-K	2020-04-24
8-K	2020-04-03
8-K	2020-03-10
8-K	2020-03-02
8-K	2020-01-15
8-K	2019-11-06
8-K	2019-10-23
8-K	2019-10-10
8-K	2019-09-10
8-K	2019-07-24
8-K	2019-05-14
8-K	2019-05-07
8-K	2019-04-25
8-K	2019-04-16
8-K	2019-02-13
8-K	2019-02-06
8-K	2019-01-23
8-K	2018-10-25
8-K	2018-10-24
8-K	2018-10-24
8-K	2018-07-25
8-K	2018-06-28
8-K	2018-06-14
8-K	2018-05-17
8-K	2018-05-15
8-K	2018-05-01
8-K	2018-04-25
8-K	2018-03-05
8-K	2018-02-08

EX-31.1	tzoo-exx3116x30x20.htm
EX-31.2	tzoo-exx3126x30x20.htm
EX-32.1	tzoo-exx3216x30x20.htm
EX-32.2	tzoo-exx3226x30x20.htm

TZOO 10Q Quarterly Report

Travelzoo Earnings 2020-06-30