Attached files
file | filename |
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EX-32.2 - EX-32.2 - TRAVELZOO | f57291exv32w2.htm |
EX-32.1 - EX-32.1 - TRAVELZOO | f57291exv32w1.htm |
EX-31.1 - EX-31.1 - TRAVELZOO | f57291exv31w1.htm |
EX-31.2 - EX-31.2 - TRAVELZOO | f57291exv31w2.htm |
EX-10.1 - EX-10.1 - TRAVELZOO | f57291exv10w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
o | 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 INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 36-4415727 | |
(State or other jurisdiction of | (I.R.S. employer | |
incorporation or organization) | identification no.) | |
590 Madison Avenue, 37th Floor | 10022 | |
New York, New York | (Zip code) | |
(Address of principal executive offices) |
Registrants 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 þ No o
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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares of Travelzoo common stock outstanding as of November 5, 2010 was
16,443,828 shares.
TRAVELZOO INC.
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PART IFINANCIAL INFORMATION
Item 1. Financial Statements
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 34,717 | $ | 19,776 | ||||
Accounts receivable, less allowance for doubtful accounts of $531 and $501 as of September 30, 2010 and December 31, 2009, respectively |
14,152 | 11,279 | ||||||
Prepaid income tax |
1,781 | 6,061 | ||||||
Deposits |
210 | 139 | ||||||
Prepaid expenses and other current assets |
1,377 | 1,103 | ||||||
Deferred tax assets |
966 | 966 | ||||||
Total current assets |
53,203 | 39,324 | ||||||
Deposits, less current portion |
319 | 381 | ||||||
Deferred tax assets, less current portion |
52 | 52 | ||||||
Restricted cash |
875 | 875 | ||||||
Property and equipment, net |
3,822 | 4,089 | ||||||
Intangible assets, net |
1,146 | 1,411 | ||||||
Total assets |
$ | 59,417 | $ | 46,132 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 7,331 | $ | 6,834 | ||||
Accrued expenses |
5,712 | 4,278 | ||||||
Deferred revenue |
1,177 | 828 | ||||||
Income tax payable |
500 | | ||||||
Deferred rent |
211 | 134 | ||||||
Total current liabilities |
14,931 | 12,074 | ||||||
Deferred tax liabilities long-term |
597 | 533 | ||||||
Long-term tax liabilities |
1,435 | 2,139 | ||||||
Deferred rent, less current portion |
518 | 615 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.01 par value per share (5,000 shares authorized; none issued) |
| | ||||||
Common stock, $0.01 par value (40,000 shares authorized; 16,444 shares issued and outstanding as of September 30, 2010 and December 31, 2009) |
164 | 164 | ||||||
Additional paid-in capital |
6,410 | 4,772 | ||||||
Retained earnings |
36,378 | 27,008 | ||||||
Accumulated other comprehensive loss |
(1,016 | ) | (1,173 | ) | ||||
Total stockholders equity |
41,936 | 30,771 | ||||||
Total liabilities and stockholders equity |
$ | 59,417 | $ | 46,132 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
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TRAVELZOO INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | 27,693 | $ | 23,576 | $ | 84,317 | $ | 70,194 | ||||||||
Cost of revenues |
1,742 | 1,464 | 5,012 | 4,140 | ||||||||||||
Gross profit |
25,951 | 22,112 | 79,305 | 66,054 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
13,630 | 13,437 | 42,671 | 37,450 | ||||||||||||
General and administrative |
6,616 | 6,395 | 19,833 | 18,420 | ||||||||||||
Total operating expenses |
20,246 | 19,832 | 62,504 | 55,870 | ||||||||||||
Operating income from continuing operations |
5,705 | 2,280 | 16,801 | 10,184 | ||||||||||||
Other income and expense: |
||||||||||||||||
Interest income and other income |
45 | 8 | 132 | 40 | ||||||||||||
Gain (loss) on foreign currency |
20 | 320 | (190 | ) | 17 | |||||||||||
Income from continuing operations before
income taxes |
5,770 | 2,608 | 16,743 | 10,241 | ||||||||||||
Income taxes |
2,120 | 1,308 | 7,373 | 5,292 | ||||||||||||
Income from continuing operations, net of tax |
3,650 | 1,300 | 9,370 | 4,949 | ||||||||||||
Loss from discontinued operations, net of tax |
| (1,595 | ) | | (5,097 | ) | ||||||||||
Net income (loss) |
$ | 3,650 | $ | (295 | ) | $ | 9,370 | $ | (148 | ) | ||||||
Basic net income (loss) per share from: |
||||||||||||||||
Continuing operations |
$ | 0.22 | $ | 0.08 | $ | 0.57 | $ | 0.30 | ||||||||
Discontinued operations |
$ | | $ | (0.10 | ) | $ | | $ | (0.31 | ) | ||||||
Net income (loss) per share |
$ | 0.22 | $ | (0.02 | ) | $ | 0.57 | $ | (0.01 | ) | ||||||
Diluted net income (loss) per share from: |
||||||||||||||||
Continuing operations |
$ | 0.22 | $ | 0.08 | $ | 0.57 | $ | 0.30 | ||||||||
Discontinued operations |
$ | | $ | (0.10 | ) | $ | | $ | (0.31 | ) | ||||||
Net income (loss) per share |
$ | 0.22 | $ | (0.02 | ) | $ | 0.57 | $ | (0.01 | ) | ||||||
Shares used in computing basic net income
(loss) per share |
16,444 | 16,444 | 16,444 | 16,396 | ||||||||||||
Shares used in computing diluted net income
(loss) per share |
16,453 | 16,452 | 16,453 | 16,413 |
See accompanying notes to unaudited condensed consolidated financial statements.
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Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 9,370 | $ | (148 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
1,766 | 1,457 | ||||||
Deferred income tax |
64 | | ||||||
Stock-based compensation |
562 | | ||||||
Provision for losses on accounts receivable |
106 | 302 | ||||||
Net foreign currency effect |
190 | (17 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(2,982 | ) | (766 | ) | ||||
Deposits |
(109 | ) | (75 | ) | ||||
Prepaid income tax |
4,280 | | ||||||
Prepaid expenses and other current assets |
(278 | ) | 422 | |||||
Accounts payable |
594 | 1,600 | ||||||
Accrued expenses |
1,416 | (101 | ) | |||||
Deferred revenue |
348 | 153 | ||||||
Deferred rent |
(20 | ) | (127 | ) | ||||
Income tax payable |
496 | | ||||||
Other non-current liabilities |
(704 | ) | 19 | |||||
Net cash provided by operating activities |
15,099 | 2,719 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(1,142 | ) | (1,608 | ) | ||||
Purchases of intangible assets |
| (1,760 | ) | |||||
Net cash used in investing activities |
(1,142 | ) | (3,368 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options |
| 2,158 | ||||||
Proceeds from sale of Asia Pacific business segment |
1,073 | | ||||||
Net cash provided by financing activities |
1,073 | 2,158 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(89 | ) | 6 | |||||
Net increase in cash and cash equivalents |
14,941 | 1,515 | ||||||
Cash and cash equivalents at beginning of period |
19,776 | 14,179 | ||||||
Cash and cash equivalents at end of period |
$ | 34,717 | $ | 15,694 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for income taxes, net |
$ | 3,264 | $ | 4,732 |
See accompanying notes to unaudited condensed consolidated financial statements.
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TRAVELZOO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
Note 1: The Company and Basis of Presentation
Travelzoo Inc. (the Company or Travelzoo) is a global Internet media company. We inform
over 21 million subscribers worldwide, as well as millions of website users, about the best travel
and entertainment deals available from thousands of companies. Our deal experts source, research
and test-book offers, recommending only those that meet Travelzoos rigorous quality standards. We
provide airlines, hotels, cruise lines, vacation packagers, and other travel and entertainment
companies with a fast, flexible, and cost effective way to reach millions of consumers. Our
revenues are generated primarily from advertising fees. Our publications and products include the
Travelzoo websites (www.travelzoo.com, www.travelzoo.ca, www.travelzoo.co.uk, www.travelzoo.de,
www.travelzoo.es, www.travelzoo.fr, among others), the Travelzoo Top 20 e-mail newsletter, the
Newsflash e-mail alert service, the SuperSearch pay-per-click travel search tool, and the Travelzoo
Network, a network of third-party websites that list travel deals published by Travelzoo. We also
operate Fly.com, a travel search engine that allows users to quickly and easily find the best
prices on flights from hundreds of airlines and online travel agencies. In August 2010, we launched
Local Deals, a new service that allows our subscribers to purchase vouchers for deals from local
businesses such as spas and restaurants. The vouchers are redeemable at the local businesses during
the promotional period. We receive a percentage of the face value of the voucher from the local
businesses.
Starting
November 1, 2009, the Travelzoo websites in Asia Pacific (cn.travelzoo.com,
www.travelzoo.co.jp, www.travelzoo.com.au, www.travelzoo.com.hk, www.travelzoo.com.tw, among
others), the Travelzoo Top 20 e-mail newsletters in Asia Pacific and the Newsflash e-mail alert
service in Asia Pacific have been published by Travelzoo (Asia) Limited and Travelzoo Japan K.K.,
wholly owned subsidiaries of Azzurro Capital Inc., under a license agreement with the Company.
Travelzoo is controlled by Ralph Bartel, who held beneficially approximately 66.3% of the
outstanding shares as of November 1, 2010.
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 present fairly the financial position of the Company, and its results of operations
and cash flows. These condensed consolidated financial statements should be read in conjunction
with the Companys audited consolidated financial statements and related notes as of and for the
year ended December 31, 2009, included in the Companys Form 10-K filed with the SEC on March 16,
2010, and as amended on May 6, 2010.
The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. All foreign subsidiaries use the local currency of their respective
countries as their functional currency. Assets and liabilities are translated into U.S. dollars at
exchange rates prevailing at the balance sheet dates. Revenues, costs and expenses are translated
into U.S. dollars at average exchange rates for the period.
The results of operations for the three and nine months ended September 30, 2010 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2010 or
any other future period, and the Company makes no representations related thereto.
Certain prior period amounts have been reclassified to conform to current year presentation.
Specifically, as described in Note 15, Discontinued Operations, the Company has classified the
financial results of its Asia Pacific operating segment as discontinued operations for all periods
presented due to the sale of the assets of its Asia Pacific subsidiaries, which constituted the
Companys Asia Pacific operating segment, to Travelzoo (Asia) Limited and Travelzoo Japan K.K.,
wholly-owned subsidiaries of Azzurro Capital Inc. The notes to the Companys unaudited condensed
consolidated financial statements relate to continuing operations only, unless otherwise indicated.
The Company was formed as a result of a combination and merger of entities founded by the
Companys majority stockholder, Ralph Bartel. In 1998, Mr. Bartel founded Travelzoo.com
Corporation, a Bahamas corporation, which issued 5,155,874 shares via the
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Internet to approximately 700,000 Netsurfer stockholders for no cash consideration, but
subject to certain conditions as referred to below. In 1998, Mr. Bartel also founded Silicon
Channels Corporation, a California corporation, to operate the Travelzoo website. During 2001,
Travelzoo Inc. was formed as a subsidiary of Travelzoo.com Corporation, and Mr. Bartel contributed
all of the outstanding shares of Silicon Channels Corporation to Travelzoo Inc. in exchange for
8,129,273 shares of Travelzoo Inc. and options to acquire an additional 2,158,349 shares at $1.00.
Mr. Bartel exercised these options in January 2009.
During January 2001, the Board of Directors of Travelzoo.com Corporation proposed that
Travelzoo.com Corporation be merged with Travelzoo Inc. whereby Travelzoo Inc. would be the
surviving entity. On March 15, 2002, the stockholders of Travelzoo.com Corporation approved the
merger with Travelzoo Inc. On April 25, 2002, the certificate of merger was filed in Delaware upon
which the merger became effective and Travelzoo.com Corporation ceased to exist. Each outstanding
share of common stock of Travelzoo.com Corporation was converted into the right to receive one
share of common stock of Travelzoo Inc. Under and subject to the terms of the merger agreement,
stockholders were allowed a period of two years following the effective date of the merger to
receive shares of Travelzoo Inc. The records of Travelzoo.com Corporation showed that, assuming all
of the shares applied for by the Netsurfer stockholders were validly issued, there were 11,295,874
shares of Travelzoo.com Corporation outstanding. As of April 25, 2004, two years following the
effective date of the merger, 7,180,342 shares of Travelzoo.com Corporation had been exchanged for
shares of Travelzoo Inc. Prior to that date, the remaining shares which were available for issuance
pursuant to the merger agreement were included in the issued and outstanding common stock of
Travelzoo Inc. and included in the calculation of basic and diluted earnings per share. After April
25, 2004, the Company ceased issuing shares to the former stockholders of Travelzoo.com
Corporation, and no additional shares are reserved for issuance to any former stockholders, because
their right to receive shares has now expired. On April 25, 2004, the number of shares reported as
outstanding was reduced from 19,425,147 to 15,309,615 to reflect actual shares issued as of the
expiration date. Earnings per share calculations reflect this reduction of the number of shares
reported as outstanding. As of September 30, 2010, there were 16,443,828 shares of common stock
outstanding.
It is possible that claims may be asserted against the Company in the future by former
stockholders of Travelzoo.com Corporation seeking to receive shares in the Company, whether based
on a claim that the two-year deadline for exchanging their shares was unenforceable or otherwise.
In addition, one or more jurisdictions, including the Bahamas or the State of Delaware, may assert
rights to unclaimed shares of the Company under escheat statutes. As indicated below, the Company
is currently the subject of an unclaimed property review by representatives of the State of
Delaware. If such escheat claims are asserted, whether as a result of such unclaimed property
review or otherwise, the Company intends to challenge the applicability of escheat rights, in that,
among other reasons, the identity, residency, and eligibility of the holders in question cannot be
determined. There were certain conditions applicable to the issuance of shares to the Netsurfer
stockholders, including requirements that (i) they be at least 18 years of age, (ii) they be
residents of the U.S. or Canada, and (iii) they not apply for shares more than once. The Netsurfer
stockholders were required to confirm their compliance with these conditions, and were advised that
failure to comply could result in cancellation of their shares in Travelzoo.com Corporation.
Travelzoo.com Corporation was not able to verify that the applicants met the requirements referred
to above at the time of their applications for issuance of shares. If claims are asserted by
persons claiming to be former stockholders of Travelzoo.com Corporation, the Company intends to
assert that their rights to receive their shares expired two years following the effective date of
the merger, as provided in the merger agreement. The Company also expects to take the position, if
escheat or similar claims are asserted in respect of the unissued shares in the future, that it is
not required to issue such shares. Further, even if it were established that unissued shares were
subject to escheat claims, the Company would assert that the claimant must establish that the
original Netsurfer stockholders complied with the conditions to issuance of their shares. The
Company is not able to predict the outcome of any future claims which might be asserted relating to
the unissued shares. If such claims were asserted, and were fully successful, that could result in
the Company being required to issue up to an additional approximately 4,067,000 shares of common
stock for no additional payment.
Representatives of the State of Delaware are currently conducting an unclaimed property review
of the Company. In response to information requests in this review, the Company has provided
information concerning uncashed checks and other unclaimed property which may be in the custody of
the Company. It is the Companys understanding that, if it holds unclaimed property of third
parties whose addresses are unknown (and, in the case of the unclaimed
shares referred to above, if it is established that the subscribers
were entitled to such shares), that property may be subject to escheat to the State of
Delaware, because it is the jurisdiction of incorporation of the Company. In the review, the
Company has also been requested to provide, and has provided, information concerning the unissued
shares referred to above. No escheat claims have been asserted in respect of any such unissued
shares, but it is possible that such claims may be asserted as a result of the review. The Company
is unable to predict the outcome of the unclaimed property review.
On October 15, 2004, the Company announced a program under which it would make cash payments
to people who establish that they were former stockholders of Travelzoo.com Corporation, and who
failed to submit requests to convert their shares into shares of Travelzoo Inc. within the required
time period. The accompanying condensed consolidated financial statements include a charge in
general and administrative expenses of $10,000 for these cash payments for the nine months ended
September 30, 2010. The total cost of this program is not reliably estimable because it is based on
the ultimate number of valid requests received and future levels of the Companys common stock
price. The Companys common stock price affects the liability because the amount of cash payments
under
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the program is based in part on the recent level of the stock price at the date valid requests
are received. The Company does not know how many of the requests for shares originally received by
Travelzoo.com Corporation in 1998 were valid, but the Company believes that only a portion of such
requests were valid. As noted above, in order to receive payment under the program, a person is
required to establish that such person validly held shares in Travelzoo.com Corporation. Assuming
100% of the requests from 1998 were valid, former stockholders of Travelzoo.com Corporation holding
an additional approximately 4,067,000 shares had not submitted claims under the program as of
September 30, 2010.
Note 2: Revenue Recognition
The Companys revenue consists primarily of advertising sales. Advertising revenues are
principally derived from the sale of advertising in North America and Europe on the Travelzoo
website, in the Travelzoo Top 20 e-mail newsletter, in Newsflash, from SuperSearch, from the
Travelzoo Network, and from Fly.com. The Company also generates revenue from the sale of vouchers
through our Local Deals service.
The Company recognizes revenues in accordance with the SEC Staff Accounting Bulletin for
revenue recognition. Advertising revenues are recognized in the period in which the advertisement
is displayed, provided that evidence of an arrangement exists, the fees are fixed or determinable,
and collection of the resulting receivable is reasonably assured.
Where collectibility is not reasonably assured, the revenue will be recognized upon cash
collection, provided that the other criteria for revenue recognition have been met. The Company
recognizes revenue for fixed-fee advertising arrangements ratably over the term of the insertion
order as described below, with the exception of Travelzoo Top 20 or Newsflash insertions, which are
recognized upon delivery. The majority of insertion orders have terms that begin and end in a
quarterly reporting period. In the cases where at the end of a quarterly reporting period the term
of an insertion order is not complete, the Company recognizes revenue for the period by pro-rating
the total arrangement fee to revenue and deferred revenue based on a measure of proportionate
performance of its obligation under the insertion order. The Company measures proportionate
performance by the number of placements delivered and undelivered as of the reporting date. The
Company uses prices stated on its internal rate card, which represents stand-alone sales prices,
for measuring the value of delivered and undelivered placements. The stand-alone price is the price
that would be charged in the advertiser purchased only the individual insertion. Fees for
variable-fee advertising arrangements are recognized based on the number of impressions displayed,
number of clicks delivered, or number of referrals generated during the period.
Under these policies, no revenue is recognized unless persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection is deemed
reasonably assured. The Company evaluates each of these criteria as follows:
| Evidence of an arrangement. The Company considers an insertion order signed by the client or its agency to be evidence of an arrangement. |
| Delivery. Delivery is considered to occur when the advertising has been displayed and, if applicable, the click-throughs have been delivered. |
| Fixed or determinable fee. The Company considers the fee to be fixed or determinable if the fee is not subject to refund or adjustment and payment terms are standard. |
| Collection is deemed reasonably assured. Collection is deemed reasonably assured if it is expected that the client will be able to pay amounts under the arrangement as payments become due. If it is determined that collection is not reasonably assured, then revenue is deferred and recognized upon cash collection. Collection is deemed not reasonably assured when a client is perceived to be in financial distress, which may be evidenced by weak industry conditions, a bankruptcy filing, or previously billed amounts that are past due. |
Insertion orders that include fixed-fee advertising are invoiced upon acceptance of the
insertion order and on the first day of each month over the term of the insertion order, with the
exception of Travelzoo Top 20 or Newsflash insertions, which are primarily invoiced upon delivery.
Insertion orders that include variable-fee advertising are invoiced at the end of the month. The
Companys standard terms state that in the event that Travelzoo fails to publish advertisements as
specified in the insertion order, the liability of Travelzoo to the client shall be limited to, at
Travelzoos sole discretion, a pro rata refund of the advertising fee, the placement of the
advertisements at a later time in a comparable position, or the extension of the term of the
insertion order until the advertising is fully delivered. The Company believes that no significant
obligations exist after the full delivery of advertising.
Revenue from advertising sold to clients through agencies is reported at the net amount billed
to the agency.
Revenue from the sale of vouchers through our Local Deals service is reported on a net basis.
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Note 3: Recent Accounting Standards
In June 2009, the FASB issued a new accounting standard that changes the consolidation model
for variable interest entities. The new accounting standard requires a company to perform
qualitative analysis when determining whether it must consolidate a variable interest entity and
ongoing reassessments to determine if a company must consolidate a variable interest entity. The
new accounting standard also requires a company to provide additional disclosures about the nature
of restrictions on a consolidated variable interest entitys assets, its involvement with variable
interest entities, any significant changes in risk exposure due to that involvement and how its
involvement with a variable interest entity affects the companys financial statements. A company
will also be required to disclose any significant judgments and assumptions made in determining
whether it must consolidate a variable interest entity. Effective January 1, 2010, the Company
adopted this new accounting standard. The adoption of this new accounting standard did not have an
impact on the Companys consolidated results of operations or financial condition.
In October 2009, the FASB issued ASU 2009-13, a new accounting standard update for revenue
recognition with multiple deliverables. The new accounting standard update defines when individual
deliverables included in a multiple-element arrangement may be treated as separate units of
accounting. The update primarily provides two significant changes: 1) it eliminates the need for
objective and reliable evidence of the fair value for the undelivered element in order for a
delivered item to be treated as a separate unit of accounting, and 2) it eliminates the residual
method to allocate the arrangement consideration. In addition, the update also expands the
disclosure requirements for revenue recognition. The new accounting standard update will be
effective for the Company January 1, 2011, with early adoption permitted. The Company is currently
assessing the future impact of this new accounting standard on its consolidated results of
operations and financial condition.
Note 4: Financial Instruments
At September 30, 2010, restricted cash consisted of a certificate of deposit for $875,000
serving as collateral for a standby letter of credit for the security deposit of our corporate
headquarters. Cash equivalents consist of highly liquid investments with remaining maturities of
three months or less on the date of purchase held in money market funds. The Company believes that
the carrying amounts of these financial assets are a reasonable estimate of their fair value. The
fair value of these financial assets was determined using the following inputs at September 30,
2010 (in thousands):
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Money market funds |
$ | 27,981 | $ | 27,981 | $ | | $ | | ||||||||
Total |
$ | 27,981 | $ | 27,981 | $ | | $ | | ||||||||
Note 5: Internal-Use Software and Website Development
The Company includes in fixed assets the capitalized cost of internal-use software and website
development, including software used to upgrade and enhance its website and processes supporting
the Companys business. Costs incurred in the planning stage and operating stage are expensed as
incurred while costs incurred in the application development stage and infrastructure development
stage are capitalized, assuming such costs are deemed to be recoverable.
As of September 30, 2010 and December 31, 2009, our capitalized internal-use software and
website development costs, net of accumulated amortization, were $575,000 and $905,000,
respectively. For the three months ended September 30, 2010 and 2009, the Company recorded
amortization of capitalized internal-use software and website development costs of $110,000 for
each period. For the nine months ended September 30, 2010 and 2009, the Company recorded
amortization of capitalized internal-use software and website development costs of $330,000 and
$299,000, respectively.
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Note 6: Intangible Assets
Intangible assets consist of the following (in thousands):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Internet domain names |
$ | 2,117 | $ | 2,117 | ||||
Less accumulated amortization |
971 | 706 | ||||||
Total |
$ | 1,146 | $ | 1,411 | ||||
Intangible assets have a useful life of 5 years. For the three months ended September 30, 2010
and 2009, amortization expense was $89,000 for each period. For the nine months ended September 30,
2010 and 2009, amortization expense was $265,000 and $270,000, respectively.
Future expected amortization expense related to intangible assets at September 30, 2010 is as
follows (in thousands):
2010 |
$ | 89 | ||
2011 |
354 | |||
2012 |
352 | |||
2013 |
351 | |||
$ | 1,146 | |||
The expected amortization expense is an estimate. Actual amounts of amortization expense may
differ from estimated amounts due to additional intangible asset acquisitions, impairment of
intangible assets, accelerated amortization of intangible assets and other events.
Note 7: Certain Risks and Uncertainties
The Companys 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 receivable are derived from revenue
earned from customers located in the U.S. and internationally.
The Company maintains an allowance for doubtful accounts based upon its historical experience,
the age of the receivable and customer specific information. Determining appropriate allowances for
these losses is an inherently uncertain process, and ultimate losses may vary from the current
estimates. The allowance for doubtful accounts was $531,000 and $501,000 at September 30, 2010 and
December 31, 2009, respectively.
Note 8: Stock-Based Compensation and Stock Options
In October 2001, the Company granted to each director fully vested and exercisable options to
purchase 30,000 shares of common stock with an exercise price of $2.00 per share for their services
as a director in 2000 and 2001. A total of 210,000 options were granted. The options expire in
October 2011. 150,000 options were exercised during the year ended December 31, 2005, 17,275
options were exercised during the year ended December 31, 2006, and 30,000 options were exercised
during the year ended December 31, 2008. As of September 30, 2010, 12,725 of these options are
vested and remain outstanding.
In March 2002, the Company granted to each director options to purchase 5,000 shares of common
stock with an exercise price of $3.00 per share that vested in connection with their services as a
director in 2002. A total of 35,000 options were granted. The options expire in March 2012. In
October 2002, 1,411 options were cancelled upon the resignation of a director, 23,589 options were
exercised during the year ended December 31, 2004 and 5,000 options were exercised during the year
ended December 31, 2008. As of September 30, 2010, 5,000 of these options are vested and remain
outstanding.
In November 2009, the Company granted to one of its employees options to purchase 300,000
shares of common stock with an exercise price of $14.97. 75,000 options vest and become exercisable
annually starting in July 1, 2011. The options expire in November 2019. As of September 30, 2010,
none of the options were vested and 300,000 options were outstanding. Total stock-based
compensation for the three and nine months ended September 30, 2010 was $187,000 and
$562,000, respectively. The Company did not record any stock-based compensation for three and nine
months ended September 30, 2009.
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As of September 30, 2010, there was approximately $2.8 million of unrecognized stock-based
compensation expense related to outstanding stock options. This amount is expected to be recognized
over 3.8 years. To the extent the actual forfeiture rate is different from what we have
anticipated, stock-based compensation related to these options will be different from our
expectations.
Note 9: 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 per share (in
thousands, except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss): |
||||||||||||||||
Net income from continuing operations, net of tax |
$ | 3,650 | $ | 1,300 | $ | 9,370 | $ | 4,949 | ||||||||
Net loss from discontinued operations, net of tax |
| (1,595 | ) | | (5,097 | ) | ||||||||||
Net income (loss) |
$ | 3,650 | $ | (295 | ) | $ | 9,370 | $ | (148 | ) | ||||||
Weighted average common shares |
16,444 | 16,444 | 16,444 | 16,396 | ||||||||||||
Dilutive potential common shares |
||||||||||||||||
Stock options |
9 | 8 | 9 | 17 | ||||||||||||
Diluted weighted average common shares |
16,453 | 16,452 | 16,453 | 16,413 | ||||||||||||
Basic net income (loss) per share from: |
||||||||||||||||
Continuing operations |
$ | 0.22 | $ | 0.08 | $ | 0.57 | $ | 0.30 | ||||||||
Discontinued operations |
| (0.10 | ) | | (0.31 | ) | ||||||||||
Net income (loss) |
$ | 0.22 | $ | (0.02 | ) | $ | 0.57 | $ | (0.01 | ) | ||||||
Diluted net income (loss) per share from: |
||||||||||||||||
Continuing operations |
$ | 0.22 | $ | 0.08 | $ | 0.57 | $ | 0.30 | ||||||||
Discontinued operations |
| (0.10 | ) | | (0.31 | ) | ||||||||||
Net income (loss) |
$ | 0.22 | $ | (0.02 | ) | $ | 0.57 | $ | (0.01 | ) | ||||||
For the three and nine months ended September 30, 2010, options to purchase approximately
300,000 shares of common stock were not included in the calculation because the effect would have
been anti-dilutive.
Note 10: Commitments and Contingencies
The Company leases office space in Canada, France, Germany, Spain, the U.K., and the U.S.
under operating leases which expire between December 31, 2010 and January 31, 2014. The future
minimum lease payments under these operating leases as of September 30, 2010 total $8.2 million.
The future lease payments consist of $1,056,000 due in 2010, $3,062,000 due in 2011, $2,033,000 due
in 2012, $1,924,000 due in 2013, and $161,000 due in 2014.
It is possible that claims may be asserted against the Company in the future by former
stockholders of Travelzoo.com Corporation seeking to receive shares in the Company, whether based
on a claim that the two-year deadline for exchanging their shares was unenforceable or otherwise.
In addition, one or more jurisdictions, including the Bahamas or the State of Delaware, may assert
rights to unclaimed shares of the Company under escheat statutes. As discussed in Note 1 above, the
Company is currently the subject of an unclaimed property review by representatives of the State of
Delaware. If such escheat claims are asserted, whether as a result of such unclaimed property
review or otherwise, the Company intends to challenge the applicability of escheat rights, in that,
among other reasons, the identity, residency, and eligibility of the holders in question cannot be
determined. There were certain conditions applicable to the issuance of shares to the Netsurfer
stockholders, including requirements that (i) they be at least 18 years of age, (ii)
they be residents of the U.S. or Canada, and (iii) they not apply for shares more than once.
The Netsurfer stockholders were required to confirm their compliance with these conditions, and
were advised that failure to comply could result in cancellation of their shares in Travelzoo.com
Corporation. Travelzoo.com Corporation was not able to verify that the applicants met the
requirements referred to above at the time of their applications for issuance of shares. If claims
are asserted by persons claiming to be former stockholders of
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Travelzoo.com Corporation, the
Company intends to assert that their rights to receive their shares expired two years following the
effective date of the merger, as provided in the merger agreement. The Company also expects to take
the position, if escheat or similar claims are asserted in respect of the unissued shares in the
future, that it is not required to issue such shares. Further, even if it were established that
unissued shares were subject to escheat claims, the Company would assert that the claimant must
establish that the original Netsurfer stockholders complied with the conditions to issuance of
their shares. The Company is not able to predict the outcome of any future claims which might be
asserted relating to the unissued shares. If such claims were asserted, and were fully successful,
that could result in the Company being required to issue up to an additional approximately
4,067,000 shares of common stock for no additional payment.
On October 15, 2004, the Company announced a program under which it would make cash payments
to people who establish that they were former stockholders of Travelzoo.com Corporation, and who
failed to submit requests to convert their shares into shares of Travelzoo Inc. within the required
time period. The accompanying condensed consolidated financial statements include a charge in
general and administrative expenses of $10,000 for these cash payments for the nine months ended
September 30, 2010. The total cost of this program is not reliably estimable because it is based on
the ultimate number of valid requests received and future levels of the Companys common stock
price. The Companys common stock price affects the liability because the amount of cash payments
under the program is based in part on the recent level of the stock price at the date valid
requests are received. The Company does not know how many of the requests for shares originally
received by Travelzoo.com Corporation in 1998 were valid, but the Company believes that only a
portion of such requests were valid. As noted above, in order to receive payment under the program,
a person is required to establish that such person validly held shares in Travelzoo.com
Corporation. Assuming 100% of the requests from 1998 were valid, former stockholders of
Travelzoo.com Corporation holding approximately 4,067,000 shares had not submitted claims under the
program.
Note 11: Income Taxes
In determining the quarterly provisions for income taxes, the Company uses an estimated annual
effective tax rate which is based on our expected annual income and statutory tax rates in the U.S.
The effective tax rate does not reflect any tax benefits from the losses of our foreign operations.
For the nine months ended September 30, 2010, our effective tax rate was 44%.
At September 30, 2010, the Company had approximately $1.4 million in total unrecognized tax
benefits. Unrecognized tax benefits of approximately $156,000, which if recognized, would favorably
affect the Companys effective income tax rate and unrecognized tax benefits of approximately $1.2
million, if recognized, would be recorded in discontinued operations.
The Companys policy is to include interest and penalties related to unrecognized tax
positions in income tax expense. As of September 30, 2010 and December 31, 2009, the Company had
approximately $68,000 and $136,000, respectively, in accrued interest related to uncertain tax
positions. The Company has not accrued any penalties related to our uncertain tax positions as we
believe that it is more likely than not that there will not be any assessment of penalties.
The Company files income tax returns in the U.S. federal jurisdiction and various states and
foreign jurisdictions. The Company is no longer subject to U.S. federal and certain state tax
examinations for years before 2005 and is no longer subject to California tax examinations for
years before 2004. In the third quarter of 2010, the Company reached a final settlement with the
Internal Revenue Service with regards to the examination of the Companys 2005 and 2006 tax years,
as a result of which the Company paid additional taxes of approximately $544,000, including
interest which the Company had fully reserved, and recorded a tax benefit of approximately $202,000
due to the release of previously established tax liabilities and related interest.
Note 12: Segment Reporting and Significant Customer Information
The Company manages its business geographically and has two reportable operating segments:
North America and Europe. North America consists of the Companys operations in Canada and the U.S.
Europe consists of the Companys operations in France, Germany, Spain, and the U.K. The Company
began operations in Europe in May 2005.
Management relies on an internal management reporting process that provides revenue and
segment operating income (loss) for making financial decisions and allocating resources. Management
believes that segment revenues and operating income (loss) are appropriate measures of evaluating
the operational performance of the Companys segments.
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The following is a summary of operating results from continuing operations and assets (in
thousands) by business segment:
North | ||||||||||||||||
Three months ended September 30, 2010: | America | Europe | Elimination | Consolidated | ||||||||||||
Revenues from unaffiliated customers |
$ | 21,196 | $ | 6,497 | $ | | $ | 27,693 | ||||||||
Intersegment revenues |
57 | 14 | (71 | ) | | |||||||||||
Total net revenues |
21,253 | 6,511 | (71 | ) | 27,693 | |||||||||||
Operating income |
5,457 | 248 | | 5,705 |
North | ||||||||||||||||
Three months ended September 30, 2009: | America | Europe | Elimination | Consolidated | ||||||||||||
Revenues from unaffiliated customers |
$ | 18,830 | $ | 4,746 | $ | | $ | 23,576 | ||||||||
Intersegment revenues |
84 | 4 | (88 | ) | | |||||||||||
Total net revenues |
18,914 | 4,750 | (88 | ) | 23,576 | |||||||||||
Operating income (loss) |
3,630 | (1,317 | ) | (33 | ) | 2,280 |
North | ||||||||||||||||
Nine months ended September 30, 2010: | America | Europe | Elimination | Consolidated | ||||||||||||
Revenues from unaffiliated customers |
$ | 65,716 | $ | 18,601 | $ | | $ | 84,317 | ||||||||
Intersegment revenues |
128 | 79 | (207 | ) | | |||||||||||
Total net revenues |
65,844 | 18,680 | (207 | ) | 84,317 | |||||||||||
Operating income (loss) |
18,310 | (1,511 | ) | 2 | 16,801 |
North | ||||||||||||||||
Nine months ended September 30, 2009: | America | Europe | Elimination | Consolidated | ||||||||||||
Revenues from unaffiliated customers |
$ | 58,474 | $ | 11,720 | $ | | $ | 70,194 | ||||||||
Intersegment revenues |
208 | 30 | (238 | ) | | |||||||||||
Total net revenues |
58,682 | 11,750 | (238 | ) | 70,194 | |||||||||||
Operating income (loss) |
13,898 | (3,661 | ) | (53 | ) | 10,184 |
North | ||||||||||||||||
As of September 30, 2010: | America | Europe | Elimination | Consolidated | ||||||||||||
Property and equipment, net |
$ | 3,664 | $ | 158 | $ | | $ | 3,822 | ||||||||
Total assets |
78,483 | 8,094 | (27,160 | ) | 59,417 |
North | ||||||||||||||||
As of December 31, 2009: | America | Europe | Elimination | Consolidated | ||||||||||||
Property and equipment, net |
$ | 3,908 | $ | 181 | $ | | $ | 4,089 | ||||||||
Total assets |
64,095 | 4,960 | (22,923 | ) | 46,132 |
Revenue for each segment is recognized based on the customer location within a designated
geographic region. Property and equipment are attributed to the geographic region in which the
assets are located.
For the three and nine months ended September 30, 2010 and 2009, the Company did not have any
customers that accounted for 10% or more of revenue. As of September 30, 2010 and December 31,
2009, the Company did not have any customers that accounted for 10% or more of accounts receivable.
Note 13: Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income.
Other comprehensive income refers to gains that under generally accepted accounting principles are
recorded as an element of stockholders equity but are excluded from net income. The Companys
other comprehensive income is comprised of foreign currency translation adjustments.
The following are components of comprehensive income (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 3,650 | $ | (295 | ) | $ | 9,370 | $ | (148 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustments |
$ | 215 | $ | (451 | ) | $ | 158 | $ | (1 | ) | ||||||
Total comprehensive income (loss) |
$ | 3,865 | $ | (746 | ) | $ | 9,528 | $ | (149 | ) | ||||||
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Note 14: Related Party Transaction
On October 31, 2009, the Company completed the sale of its Asia Pacific operating segment to
Azzurro Capital Inc. and its wholly owned subsidiaries, Travelzoo (Asia) Limited and Travelzoo
Japan K.K. Azzurro Capital Inc. is owned and controlled by The Ralph Bartel 2005 Trust. Ralph
Bartel, the Companys principal shareholder, is a Director of the Company and through September 30,
2010 was the Companys Chairman. Mr. Bartel is a member of the board of directors of Azzurro
Capital Inc. and is currently the sole beneficiary of The Ralph Bartel 2005 Trust. The Companys
receivables from Travelzoo (Asia) Limited and Travelzoo Japan K.K. totaled $182,000 as of September
30, 2010 and were related primarily to fees under the Hosting Agreement and Referral Agreement. The
$182,000 is part of prepaid expenses and other current assets in the accompanying condensed
consolidated balance sheets. See Note 15 for a further discussion on the sale of the Companys Asia
Pacific operating segment.
In July 2010, the Company entered into an independent contractor agreement with Holger Bartel,
the Companys former Chief Executive Officer, the Companys Chairman and brother of Ralph Bartel,
who controls the Company, to provide consulting services. Fees for these services rendered during
the quarter ended September 30, 2010 totaled approximately $104,000.
Note 15: Discontinued Operations
On September 30, 2009, the Company and its principal Asia Pacific subsidiaries entered into
two definitive Asset Purchase Agreements (Asset Purchase Agreements) with Azzurro Capital Inc., a
company owned and controlled by The Ralph Bartel 2005 Trust, on behalf of itself, and Azzurro
Capital Inc.s newly formed wholly-owned subsidiaries, Travelzoo (Asia) Limited and Travelzoo Japan
K.K., providing for those companies to acquire substantially all of the assets, and with the
exception of intercompany loans, assume substantially all of the liabilities of Travelzoos
principal Asia Pacific subsidiaries, which constituted Travelzoos Asia Pacific operating segment.
The aggregate purchase price under the Asset Purchase Agreements was $3,600,000, subject to a
working capital adjustment, as defined in the Asset Purchase Agreements, based on unaudited balance
sheets as of October 31, 2009. Ralph Bartel, the Companys principal shareholder, is a Director of
the Company and through September 30 2010, was the Companys Chairman. Mr. Bartel is a member of
the board of directors of Azzurro Capital Inc. and is currently the sole beneficiary of The Ralph
Bartel 2005 Trust.
As part of the transaction, the Company and Azzurro Capital Inc., Travelzoo (Asia) Limited and
Travelzoo Japan K.K. entered into the following additional agreements:
| A License Agreement providing for a limited, nontransferable (except as provided therein), perpetual, exclusive (except as provided therein) fully paid-up license to perform the Licensed Services and Licensed Business Processes (as defined in the License Agreements), and to use the Licensed Marks, the Licensed Software, the Licensed Trade Secrets, and the Licensed Works (as defined in the License Agreements) in connection with the Licensed Services and Licensed Business Processes within the Territory, which is defined as all countries located in those time zones that are more than five hours ahead of Greenwich Mean Time, based on Standard time, including India and Pakistan, but excluding Russia. |
| A Hosting Agreement under which Travelzoo agrees to host, transact, process, store, implement, operate, manage, maintain and provide access to licensed software and to data files and content provided by Travelzoo (Asia) Limited and Travelzoo Japan K.K. for use in connection with the Licensed Services and the Licensed Business Processes referred to in the Hosting Agreement. |
| A Referral Agreement pursuant to which each party will, on a non-exclusive basis, make customer referrals to each other, in consideration for receiving a specified percentage of the revenues derived from such referrals. |
| A Transition Services Agreement under which Travelzoo agrees to provide, at the option of the Travelzoo (Asia) Limited and Travelzoo Japan K.K, certain services on a temporary basis, at the prices and on other terms to be determined as provided in the Transition Services Agreement. |
The Company and Azzurro Capital Inc. also entered into an Option Agreement (the Option
Agreement) on September 30, 2009, under which the Company will have an option (the Option) to
acquire the assets or shares of the Travelzoo (Asia) Limited and Travelzoo Japan K.K., exercisable
during the month of June in any year from 2011 to 2020. The Option is also exercisable upon receipt
by Travelzoo of a notice delivered under the Option Agreement of (a) the intent for either or both
of the Travelzoo (Asia)
14
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Limited and Travelzoo Japan K.K. to cease operations or (b) an intention to
effect an initial public offering of the shares of either of Travelzoo (Asia) Limited or Travelzoo
Japan K.K. The purchase price under the Option will be the fair market value of the assets and
business being acquired, determined by third party appraisal under the procedures set forth in the
Option Agreement.
A voting agreement was also reached between the Company and Ralph Bartel with the intent to
avoid any future conflicts of interest relating to the dealings between the Company and Azzurro
Capital Inc. and their affiliates. Under the voting agreement, Mr. Bartel agrees to vote (or cause
to be voted) any shares of the Company over which he has voting control, with respect to any
proposal relating to the Asia Pacific business, Azzurro Capital Inc., Travelzoo (Asia) Limited, or
Travelzoo Japan K.K., in the same manner and in the same proportion that all other securities of
the same class are voted at any meeting of the stockholders of the Company. The voting agreement
also included provisions relating to the exercise of Mr. Bartels voting rights as a shareholder or
director of the Company in respect of matters between the Company and Azzurro Capital Inc. As a
member of the Companys Board of Directors, Mr. Bartel also agrees to abstain from all
deliberations and decisions of the Board of Directors with respect to any matters relating to any
dealings, agreements or arrangements between the Company or any of its affiliates and Azzurro
Capital Inc. or any of its affiliates, including with respect to the exercise of the Option, as
mentioned above, except to the extent his vote shall be required to constitute a quorum or
otherwise to permit the Board of Directors to take action, in which case he shall vote with the
majority of the other members of the Board of Directors (or shall abstain in the case of a tie).
On October 31, 2009, the Company completed the sale of its Asia Pacific operating segment to
Azzurro Capital Inc. pursuant to the terms of the Asset Purchase Agreements. The results of
operations of the Asia Pacific operating segment have been classified as discontinued operations
for all periods presented. The Company has not had significant ongoing involvement with the
operations of the Asia Pacific operating segment and has not had material economic interests in the
Asia Pacific operating segment since the completion of the sale. Accordingly, the sale of the Asia
Pacific operating segment is treated as a discontinued operation under the relevant accounting
literature.
At the completion of the sale, the Company received $2.1 million, net of cash provided, and
had a net receivable from Travelzoo (Asia) Limited and Travelzoo Japan K.K. of $1.1 million, which
was paid in March 2010. The Company realized a gain of $3.4 million related to the sale of the net
assets of the Asia Pacific business segment to Azzurro Capital Inc. The resulting gain on the sale
was reflected as an addition to additional paid-in capital in the accompanying condensed
consolidated balance sheets as both the Company and Azzurro Capital Inc. are under the common
control of Ralph Bartel.
The following table presents the revenues and the components of loss from discontinued
operations, net of tax (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | | $ | 856 | $ | | $ | 1,886 | ||||||||
Cost of revenues |
| 58 | | 158 | ||||||||||||
Gross profit |
| 798 | | 1,728 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
| 1,360 | | 3,483 | ||||||||||||
General and administrative |
| 1,143 | | 3,483 | ||||||||||||
Total operating expenses |
| 2,503 | | 6,966 | ||||||||||||
Operating loss from discontinued operations |
| (1,705 | ) | | (5,238 | ) | ||||||||||
Other expense |
| 104 | | 93 | ||||||||||||
Loss from discontinued operations before income taxes |
| (1,601 | ) | | (5,145 | ) | ||||||||||
Income tax benefit |
| 6 | | 48 | ||||||||||||
Loss from discontinued operations, net of tax |
$ | | $ | (1,595 | ) | $ | | $ | (5,097 | ) | ||||||
15
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The information in this report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements are based upon current expectations, assumptions,
estimates and projections about Travelzoo and our industry. These forward-looking statements are
subject to the many risks and uncertainties that exist in our operations and business environment
that may cause actual results, performance or achievements of Travelzoo to be different from those
expected or anticipated in the forward-looking statements. Any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking statements. For example,
words such as may, will, should, estimates, predicts, potential, continue,
strategy, believes, anticipates, plans, expects, intends, and similar expressions are
intended to identify forward-looking statements. Travelzoos actual results and the timing of
certain events could differ significantly from those anticipated in such forward-looking
statements. Factors that might cause or contribute to such a discrepancy include, but are not
limited to, those discussed elsewhere in this report in the section entitled Risk Factors and the
risks discussed in our other SEC filings. The forward-looking statements included in this report
reflect the beliefs of our management on the date of this report. Travelzoo undertakes no
obligation to update publicly any forward-looking statements for any reason, even if new
information becomes available or other circumstances occur in the future.
Overview
Travelzoo Inc. (the Company, or Travelzoo) is a global Internet media company. We inform
over 21 million subscribers worldwide, as well as millions of website users, about the best travel
and entertainment deals available from thousands of companies. Our deal experts source, research
and test-book offers, recommending only those that meet Travelzoos rigorous quality standards. We
provide airlines, hotels, cruise lines, vacation packagers, and other travel and entertainment
companies with a fast, flexible, and cost-effective way to reach millions of consumers. Our
revenues are generated primarily from advertising fees.
Our publications and products include the Travelzoo websites (www.travelzoo.com,
www.travelzoo.ca, www.travelzoo.co.uk, www.travelzoo.de, www.travelzoo.es, www.travelzoo.fr, among
others), the Travelzoo Top 20 e-mail newsletter, and the Newsflash e-mail alert service. We operate
SuperSearch, a pay-per-click travel search tool, and the Travelzoo Network, a network of
third-party websites that list deals published by Travelzoo. We also operate Fly.com, a travel
search engine that allows users to quickly and easily find the best prices on flights from hundreds
of airlines and online travel agencies. More than 2,000 travel and entertainment companies use our
services. In August 2010, we launched Local Deals, a new service that allows our subscribers to
purchase vouchers for deals from local businesses such as spas and restaurants. The vouchers are
redeemable at the local businesses during the promotional period. We receive a percentage of the
face value of the voucher from the local businesses.
On October 31, 2009, we completed the sale of our Asia Pacific operating segment to Azzurro
Capital Inc. and its wholly-owned subsidiaries, Travelzoo (Asia) Limited and Travelzoo Japan K.K.
The results of operations of the Asia Pacific operating segment have been classified as
discontinued operations for all periods presented. We have not had significant ongoing involvement
with the operations of the Asia Pacific operating segment and have not had material economic
interests in the Asia Pacific operating segment since the completion of the sale. Starting November
1, 2009, the Travelzoo websites in Asia Pacific (cn.travelzoo.com, www.travelzoo.co.jp,
www.travelzoo.com.au, www.travelzoo.com.hk, www.travelzoo.com.tw, among others), the Travelzoo Top
20 e-mail newsletters in Asia Pacific and the Newsflash e-mail alert service in Asia Pacific have
been published by Travelzoo (Asia) Limited and Travelzoo Japan K.K., under a license agreement with
the Company. See Note 15 to the accompanying condensed consolidated financial statements.
Our revenues are advertising revenues, consisting primarily of listing fees paid by travel and
entertainment companies to advertise their offers on the Travelzoo websites, in the Travelzoo Top
20 e-mail newsletter, in the Newsflash e-mail alert service, in SuperSearch, through the Travelzoo
Network, and on Fly.com. Listing fees are based on placement, number of listings, number of
impressions, number of click-throughs, or number of referrals. Insertion orders for listings are
typically for periods between one month and twelve months and are not automatically renewed.
We have two operating segments based on geographic regions: North America and Europe. North
America consists of our operations in Canada and the U.S. Europe consists of our operations in
France, Germany, Spain, and the U.K. For the quarter ended September 30, 2010, European operations
were 23% of revenues. Financial information with respect to our business segments and certain
financial information about geographic areas appears in Note 12 to the accompanying consolidated
financial statements.
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When evaluating the financial condition and operating performance of the Company, management
focuses on the following financial and non-financial indicators:
| Growth in the number of subscribers to the Companys newsletters and page views of the homepages of the Travelzoo websites; |
| Operating margin; |
| Growth in revenues in the absolute and relative to the growth in reach of the Companys publications; and |
| Revenue per employee as a measure of productivity. |
Critical Accounting Policies
We believe that there are a number of accounting policies that are critical to understanding
our historical and future performance, as these policies affect the reported amounts of revenue and
the more significant areas involving managements judgments and estimates. These significant
accounting policies relate to revenue recognition, the allowance for doubtful accounts, and
liabilities to former stockholders. These policies, and our procedures related to these policies,
are described in detail below.
Revenue Recognition
We recognize revenue on arrangements in accordance with the SEC Staff Accounting Bulletin for
revenue recognition. We recognize advertising revenues in the period in which the advertisement is
displayed, provided that evidence of an arrangement exists, the fees are fixed or determinable and
collection of the resulting receivable is reasonably assured. If fixed-fee advertising is displayed
over a term greater than one month, revenues are recognized ratably over the period as described
below. The majority of insertion orders have terms that begin and end in a quarterly reporting
period. In the cases where at the end of a quarterly reporting period the term of an insertion
order is not complete, the Company recognizes revenue for the period by pro-rating the total
arrangement fee to revenue and deferred revenue based on a measure of proportionate performance of
its obligation under the insertion order. The Company measures proportionate performance by the
number of placements delivered and undelivered as of the reporting date. The Company uses
stand-alone sales prices for measuring the value of delivered and undelivered placements. The
stand-alone price is the price that would be charged if the advertiser purchased only the
individual insertion. Fees for variable-fee advertising arrangements are recognized based on the
number of impressions displayed, number of clicks delivered, or number of referrals generated
during the period.
Under these policies, no revenue is recognized unless persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection is deemed
reasonably assured. The Company evaluates each of these criteria as follows:
| Evidence of an arrangement. We consider an insertion order signed by the client or its agency to be evidence of an arrangement. |
| Delivery. Delivery is considered to occur when the advertising has been displayed and, if applicable, the click-throughs have been delivered. |
| Fixed or determinable fee. We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment and payment terms are standard. |
| Collection is deemed reasonably assured. Collection is deemed reasonably assured if we expect that the client will be able to pay amounts under the arrangement as payments become due. If we determine that collection is not reasonably assured, then we defer the revenue and recognize the revenue upon cash collection. Collection is deemed not reasonably assured when a client is perceived to be in financial distress, which may be evidenced by weak industry conditions, a bankruptcy filing, or previously billed amounts that are past due. |
Revenue from advertising sold to clients through agencies is reported at the net amount billed
to the agency.
Revenue from the sale of vouchers through our Local Deals service is reported on a net basis.
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Allowance for Doubtful Accounts
We record a provision for doubtful accounts based on our historical experience of write-offs
and a detailed assessment of our accounts receivable and allowance for doubtful accounts. In
estimating the provision for doubtful accounts, management considers the age of the accounts
receivable, our historical write-offs, the creditworthiness of the client, the economic conditions
of the clients industry, and general economic conditions, among other factors. Should any of these
factors change, the estimates made by management will also change, which could impact the level of
our future provision for doubtful accounts. Specifically, if the financial condition of our clients
were to deteriorate, affecting their ability to make payments, additional provision for doubtful
accounts may be required.
Liability to Former Stockholders
On October 15, 2004, we announced a program under which we would make cash payments to people
who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to
submit requests to convert their shares into shares of Travelzoo Inc. within the required time
period. We account for the cost of this program as an expense recorded in general and
administrative expenses. The ultimate total cost of this program is not reliably estimable because
it is based on the ultimate number of valid requests received and future levels of the Companys
common stock price. The Companys 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. We do not know how many of the requests for shares originally received
by Travelzoo.com Corporation in 1998 were valid. We believe that only a portion of such requests
were valid. In order to receive payment under the program, a person is required to establish that
such person validly held shares in Travelzoo.com Corporation.
Since the total cost of the program is not reliably estimable, the amount of expense recorded
in a period is equal to the number of actual claims received during the period multiplied by (i)
the number of shares held by each individual former stockholder and (ii) the applicable settlement
price based on the recent price of our common stock at the date the claim is received as stipulated
by the program. Requests are generally paid within 30 days of receipt. Please refer to Note 10 to
our unaudited condensed consolidated financial statements for further details about our liabilities
to former stockholders.
Results of Operations
The following table sets forth, as a percentage of total revenues, the results from our
continuing operations for the periods indicated.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues |
6.3 | 6.2 | 6.0 | 5.9 | ||||||||||||
Gross profit |
93.7 | 93.8 | 94.0 | 94.1 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
49.2 | 57.0 | 50.6 | 53.4 | ||||||||||||
General and administrative |
23.9 | 27.1 | 23.5 | 26.2 | ||||||||||||
Total operating expenses |
73.1 | 84.1 | 74.1 | 79.6 | ||||||||||||
Operating income from continuing operations |
20.6 | 9.7 | 19.9 | 14.5 | ||||||||||||
Other income and expenses, net |
0.3 | 1.4 | (0.1 | ) | 0.1 | |||||||||||
Income from continuing operations, before
income taxes |
20.9 | 11.1 | 19.8 | 14.6 | ||||||||||||
Income taxes |
7.7 | 5.6 | 8.7 | 7.5 | ||||||||||||
Income from continuing operations |
13.2 | % | 5.5 | % | 11.1 | % | 7.1 | % | ||||||||
For the three months ended September 30, 2010, we reported operating income from continuing
operations of approximately $5.7 million. Our operating margin from continuing operations increased
to 20.6% for the three months ended September 30, 2010 compared to 9.7% for the same period last
year. The main reason for the increase in operating margin from continuing operations is our
operating expenses as a percentage of revenues for the three months ended September 30, 2010
decreased compared to the three months ended September 30, 2009 (see Operating Expenses below).
For the nine months ended September 30, 2010, we reported operating income from continuing
operations of approximately $16.8 million. Our operating margin increased to 19.9% for the nine
months ended September 30, 2010 compared to 14.5% for the same period last year. The main reason
for the increase in operating margin from continuing operations is our operating expenses as a
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percentage of revenues decreased for the nine months ended September 30, 2010 compared to the
nine months ended September 30, 2009 (see Operating Expenses below).
We do not know what our sales and marketing expenses as a percentage of revenues will be in
future periods. Increased competition in our industry may require us to increase advertising for
our brand and for our products. Increases in the average cost of acquiring new subscribers (see
Subscriber Acquisition below) may result in an increase of sales and marketing expenses as a
percentage of revenues. We may decide to accelerate our subscriber acquisition for various
strategic and tactical reasons and, as a result, increase our marketing expenses. We may see a
unique opportunity for a brand marketing campaign that will result in an increase of marketing
expenses. Further, our strategy to replicate our business model in selected foreign markets (see
Growth Strategy below) may result in a significant increase in our sales and marketing expenses
and have a material adverse impact on our results of operations. We expect fluctuations of sales
and marketing expenses as a percentage of revenues from quarter to quarter. Some of the
fluctuations may be significant and have a material impact on our results of operations.
We do not know what our general and administrative expenses as a percentage of revenues will
be in future periods. There may be fluctuations that have a material impact on our results of
operations. We expect our headcount to continue to increase in the future. The Companys headcount
is one of the main drivers of general and administrative expenses. Therefore, we expect our
absolute general and administrative expenses to continue to increase. In addition, we expect our
expansion into foreign markets to result in a significant additional increase in our general and
administrative expenses. Our general and administrative expenses as a percentage of revenues may
also fluctuate depending on the number of requests received related to a program under which the
Company intends to make cash payments to people who establish that they were former stockholders of
Travelzoo.com Corporation, and who failed to submit requests to convert their shares into shares of
Travelzoo Inc. within the required time period.
Reach
The following table sets forth the number of subscribers of each of our e-mail publications in
North America and Europe as of September 30, 2010 and 2009 and the total number of page views for
the homepages of the Travelzoo websites in North America and Europe for the nine months ended
September 30, 2010 and 2009. Management considers the page views for the Travelzoo homepages as
indicators for the growth of website traffic. Management reviews these non-financial metrics for
two reasons: First, to monitor our progress in increasing the reach of our products. Second, to
evaluate whether we are able to convert higher reach into higher revenues.
September 30, | Year-over-Year | |||||||||||
2010 | 2009 | Change | ||||||||||
Subscribers: |
||||||||||||
North America |
||||||||||||
Travelzoo Top 20 |
13,545,000 | 12,462,000 | 9 | % | ||||||||
Newsflash |
11,972,000 | 10,639,000 | 13 | % | ||||||||
Europe |
||||||||||||
Travelzoo Top 20 |
4,397,000 | 3,206,000 | 37 | % | ||||||||
Newsflash |
4,337,000 | 3,116,000 | 39 | % |
Nine Months Ended September 30, | Year-over-Year | |||||||||||
2010 | 2009 | Change* | ||||||||||
Page views of homepages of Travelzoo websites: |
||||||||||||
North America |
29,819,000 | 28,373,000 | 5 | % | ||||||||
Europe |
13,712,000 | 11,155,000 | 23 | % |
* | The comparability of year-over-year changes of page views of the homepages of Travelzoo websites may be limited due to the design and navigation of the websites. |
In North America, revenues for the nine months ended September 30, 2010 increased by 12% from
the same period last year. The total number of subscribers in North America to the Travelzoo Top 20
e-mail newsletter as of September 30, 2010 increased by 9% compared to September 30, 2009 and page
views of the homepages of the Travelzoo websites in North America for the nine months ended
September 30, 2010 increased by 5% from the same period last year. In North America, revenues
increased at a higher rate of growth than the rate of growth in subscribers to the Travelzoo Top 20
e-mail newsletter and the rate of growth in page views of the homepages of the Travelzoo websites
in North America.
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In Europe, revenues for the nine months ended September 30, 2010 increased by 59% from the
same period last year. The total number of subscribers in Europe to the Travelzoo Top 20 e-mail
newsletter as of September 30, 2010 increased by 37% compared to September 30, 2009 and page views
of the homepages of the Travelzoo websites in Europe increased by 23% from the same period last
year. In Europe, revenues increased at a higher rate than the rate of growth in subscribers to the
Travelzoo Top 20 e-mail newsletter and the rate of growth in page views of the homepages of the
Travelzoo websites in Europe due in part to increases in our advertising rates.
Revenues
Our total revenues increased to $27.7 million for the three months ended September 30, 2010
from $23.6 million for the three months ended September 30, 2009. This represents an increase of
$4.1 million or 17%. $2.3 million of the increase in revenues came from our operations in North
America, which had an increase of 12% in revenues year-over-year and was attributed primarily to a
$1.1 million increase in revenues from our publications, which includes the Travelzoo website, the
Top 20 e-mail newsletter, and the Newsflash e-mail alert service and a $755,000 increase in revenue
from our search products, which consists of SuperSearch and Fly.com. $1.8 million of the increase
in revenues came from our operations in Europe, which had an increase of 37% in revenues
year-over-year, and was attributed primarily to a $1.4 million increase in revenue from our
publications, which includes the Travelzoo website, the Top 20 e-mail newsletter, and the Newsflash
e-mail alert service and a $320,000 increase in revenue from our search products, which consists of
SuperSearch and Fly.com. We launched Fly.com in Europe in October 2009. In local currency terms,
revenues from our operations in Europe increased 45% year-over-year. The strengthening of the U.S.
dollar relative to the British Pound Sterling and the Euro in the three months ended September 30,
2010 compared to the three months ended September 30, 2009 had an unfavorable impact on the
revenues from our operations in Europe. Had foreign exchange rates remained constant in these
periods, revenues from our operations in Europe for the three months ended September 30, 2010 would
have been approximately $501,000 higher than reported revenues of $6.5 million.
Our total revenues increased to $84.3 million for the nine months ended September 30, 2010
from $70.2 million for the nine months ended September 30, 2009. This represents an increase of
$14.1 million or 20%. $7.2 million of the increase in revenues came from our operations in North
America and was attributed primarily to a $5.4 million increase in revenues from our publications,
which includes the Travelzoo website, the Top 20 e-mail newsletter, and the Newsflash e-mail alert
service and a $1.2 million increase in revenue from our search products, which consists of
SuperSearch and Fly.com. $6.9 million of the increase in revenues came from our operations in
Europe, which had an increase of 59% in revenues year-over-year, and was attributed primarily to a
$5.9 million increase in revenue from our publications, which includes the Travelzoo website, the
Top 20 e-mail newsletter, and the Newsflash e-mail alert service and a $956,000 increase in our
search products, which consists of SuperSearch and Fly.com. We launched Fly.com in Europe in
October 2009. In local currency terms, revenues from our operations in Europe increased 61%
year-over-year. The strengthening of the U.S. dollar relative to the British Pound Sterling and the
Euro in the nine months ended September 30, 2010 compared to the nine months ended September 30,
2009 had an unfavorable impact on the revenues from our operations in Europe. Had foreign exchange
rates remained constant in these periods, revenues from our operations in Europe for the nine
months ended September 30, 2010 would have been approximately $363,000 higher than reported
revenues of $18.7 million.
For the three and nine months ended September 30, 2010 and September 30, 2009, none of our
customers accounted for 10% or more of our revenue.
Management believes that our ability to increase revenues in the future depends mainly on the
following factors:
| Our ability to increase our advertising rates; | ||
| Our ability to sell more advertising to existing clients; | ||
| Our ability to increase the number of clients; | ||
| Our ability to develop new revenue streams; and | ||
| Our ability to launch new products. |
We believe that we can increase our advertising rates if the reach of our publications
increases. We do not know if we will be able to increase the reach of our publications. We believe
that we can sell more advertising if the market for online advertising continues to grow and if we
can maintain or increase our market share. We believe that the market for online advertising
continues to grow. We do
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not know if we will be able to maintain or increase our market share. We historically have
increased the number of clients in every year since inception. We do not know if we will be able to
increase the number of clients in the future. We do not know if we will have market acceptance of
any new products.
Our goal is to increase our advertising rates at least once a year in each market, preferably
as of January 1 of each year. We increased advertising rates on select listings in the U.S. on
January 1, 2010 and we did not increase our advertising rates in the U.S. on January 1, 2009. We
increased advertising rates on select listings in Europe on September 1, 2010, January 1, 2010,
January 1, 2009 and April 15, 2009 due in part to the increase in the reach of our publications. In
the U.S. and Europe, we were not able to increase advertising rates on all listings in 2010 due to
intense competition in our industry. We intend to continue reviewing advertising rates and
considering increases once a year as of January 1. However, there is no assurance that we will
increase our advertising rates. Depending on the level of competition in the industry and the
condition of the online advertising market, we may decide not to increase our advertising rates in
all or certain markets.
Average annualized revenue per employee decreased to $479,000 for the three months ended
September 30, 2010 from $493,000 for the three months ended September 30, 2009.
Cost of Revenues
Cost of revenues consists primarily of network expenses, including fees we pay for co-location
services and depreciation and maintenance of network equipment, payments made to third-party
partners of the Travelzoo Network, fees we pay related to user searches on Fly.com, amortization of
capitalized website development costs, and salary expenses associated with network operations
staff. Our cost of revenues increased to $1.7 million for the three months ended September 30, 2010
from $1.5 million for the three months ended September 30, 2009. As a percentage of revenue, cost
of revenues increased to 6.3% for the three months ended September 30, 2010 from 6.2% for the three
months ended September 30, 2009. The $278,000 increase in cost of revenues for the three months
ended September 30, 2010 compared to the three months ended September 30, 2009 was primarily due to
$119,000 increase in payments made to third-party partners of the Travelzoo Network, an $89,000
increase in depreciation and maintenance costs and a $55,000 increase in fees we pay related to
user searches on Fly.com.
Our cost of revenues increased to $5.0 million for the nine months ended September 30, 2010
from $4.1 million for the nine months ended September 30, 2009. As a percentage of revenue, cost of
revenues increased to 6.0% for the nine months ended September 30, 2010 from 5.9% for the nine
months ended September 30, 2009. The $872,000 increase in cost of revenues for the nine months
ended September 30, 2010 compared to the nine months ended September 30, 2009 was primarily due to
a $473,000 increase in fees we pay related to user searches on Fly.com, a $274,000 increase in
depreciation and maintenance costs, and a $139,000 increase in payments made to third-party
partners of the Travelzoo Network.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary
expenses associated with sales, marketing and production staff, expenses related to our
participation in industry conferences, and public relations expenses. Sales and marketing expenses
increased to $13.6 million for the three months ended September 30, 2010 from $13.4 million for the
three months ended September 30, 2009. The goal of our advertising was to acquire new subscribers
for our e-mail products, increase the traffic to our websites, and increase brand awareness for
Travelzoo and Fly.com. The $193,000 increase in sales and marketing expenses for the three months
ended September 30, 2010 compared to the three months ended September 30, 2009 was primarily due to
an $813,000 increase in marketing expenses for Fly.com, and a $615,000 increase in salary and
employee related expenses due in part to an increase in headcount, offset by a $1.3 million
decrease in subscriber acquisition expense. For the three months ended September 30, 2010 and 2009,
advertising expenses accounted for 59% and 64%, respectively, of total sales and marketing
expenses.
Sales and marketing expenses increased to $42.7 million for the nine months ended September
30, 2010 from $37.5 million for the nine months ended September 30, 2009. The $5.2 million increase
in sales and marketing expenses for the nine months ended September 30, 2010 compared to the nine
months ended September 30, 2009 was primarily due to a $2.5 million increase in salary and employee
related expenses due in part to an increase in headcount and a $2.1 million increase in marketing
expenses for Fly.com. For the nine months ended September 30, 2010 and 2009, advertising expenses
accounted for 58% and 67%, respectively, of total sales and marketing expenses.
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Our goal is to increase our revenues from advertising sales. One important factor that drives
our revenues is our advertising rates. We believe that we can increase our advertising rates only
if the reach of our publications increases. In order to increase the reach of our publications, we
have to acquire a significant number of new subscribers in every quarter and continue to promote
our brand. One significant factor that impacts our advertising expenses is the average cost per
acquisition of a new subscriber. We believe that the average cost per acquisition depends mainly on
the advertising rates which we pay for media buys, our ability to manage our subscriber acquisition
efforts successfully, and the degree of competition in our industry.
In May 2005, we began operations in the U.K. In 2006, we began operations in Canada, Germany,
and Spain. In 2007, we began operations in France. The continuing build-up of our business in
Europe is expected to result in a relatively high level of sales and marketing expense in the
foreseeable future.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative,
executive, and software development staff, fees for professional services, rent, bad debt expense,
amortization of intangible assets, and general office expense. General and administrative expenses
increased to $6.6 million for the three months ended September 30, 2010 from $6.4 million for the
three months ended September 30, 2009. The $221,000 increase in general and administrative expenses
was primarily due to a $128,000 increase in bad debt expense and a $114,000 increase in rent,
office and insurance expense.
General and administrative expenses increased to $19.8 million for the nine months ended
September 30, 2010 from $18.4 million for the nine months ended September 30, 2009. The $1.4
million increase in general and administrative expenses was primarily due to a $405,000 increase in
professional services expense, a $368,000 increase in rent, office and insurance expense, a
$252,000 increase in salary and employee related expenses, and a $215,000 increase in bank and
merchant account fees.
In the nine months ended September 30, 2010 and 2009, the Company recorded expenses of $10,000
and $3,000, respectively, related to a program under which the Company makes cash payments to
people who establish that they were former stockholders of Travelzoo.com Corporation, and who
failed to submit requests for shares in Travelzoo Inc. within the required time period. The
expenses are based on the number of actual valid claims received and the Companys stock price. We
cannot reliably estimate future expenses incurred under this program because it is based on the
number of valid requests received and future levels of the Companys common stock price.
We expect our headcount to increase in the future. The Companys headcount is one of the main
drivers of general and administrative expenses. Therefore, we expect our general and administrative
expenses to continue to increase.
Our strategy to replicate our business model in foreign markets is expected to result in a
significant additional increase in our general and administrative expenses in the foreseeable
future.
Subscriber Acquisition
The table set forth below provides for each quarter in 2008, 2009, and the first three
quarters of 2010, an analysis of our average cost for acquisition of new subscribers for our
Travelzoo Top 20 newsletter and our Newsflash e-mail alert service for our North America and Europe
operating segments.
The table includes the following data:
| Average Cost per Acquisition of a New Subscriber: The quarterly cost of consumer marketing programs whose purpose was primarily to acquire new subscribers, divided by total new subscribers added during the quarter. | ||
| New Subscribers: Total new subscribers who signed up for at least one of our e-mail publications throughout the quarter. This is an unduplicated subscriber number, meaning a subscriber who signed up for two or more of our publications is only counted once. | ||
| Subscribers Removed From List: Subscribers who were removed from our lists throughout the quarter either as a result of their requesting removal, or based on periodic list maintenance after we determined that the e-mail address was likely no longer valid. | ||
| Balance: The number of subscribers at the end of the quarter, computed by taking the previous quarters subscriber balance, adding new subscribers during the current quarter, and subtracting subscribers removed from list during the current quarter. |
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North America:
Average Cost per | Subscribers | |||||||||||||||
Acquisition of a | New | Removed | ||||||||||||||
Period | New Subscriber | Subscribers | From List | Balance | ||||||||||||
Q1 2008 |
$ | 4.97 | 296,565 | (270,427 | ) | 11,022,372 | ||||||||||
Q2 2008 |
$ | 3.39 | 348,506 | (303,623 | ) | 11,067,255 | ||||||||||
Q3 2008 |
$ | 3.73 | 360,916 | (292,052 | ) | 11,136,119 | ||||||||||
Q4 2008 |
$ | 2.75 | 487,681 | (341,057 | ) | 11,282,743 | ||||||||||
Q1 2009 |
$ | 2.29 | 720,320 | (259,537 | ) | 11,743,526 | ||||||||||
Q2 2009 |
$ | 2.15 | 885,031 | (277,439 | ) | 12,351,118 | ||||||||||
Q3 2009 |
$ | 1.80 | 1,076,367 | (418,417 | ) | 13,009,068 | ||||||||||
Q4 2009 |
$ | 1.61 | 619,831 | (380,626 | ) | 13,248,273 | ||||||||||
Q1 2010 |
$ | 1.89 | 1,009,235 | (434,754 | ) | 13,822,754 | ||||||||||
Q2 2010 |
$ | 1.62 | 719,777 | (492,527 | ) | 14,050,004 | ||||||||||
Q3 2010 |
$ | 1.60 | 804,892 | (689,727 | ) | 14,165,169 |
Europe:
Average Cost per | Subscribers | |||||||||||||||
Acquisition of a | New | Removed | ||||||||||||||
Period | New Subscriber | Subscribers | From List | Balance | ||||||||||||
Q1 2008 |
$ | 3.90 | 362,417 | (45,152 | ) | 1,698,595 | ||||||||||
Q2 2008 |
$ | 4.89 | 226,156 | (31,055 | ) | 1,893,696 | ||||||||||
Q3 2008 |
$ | 4.52 | 253,961 | (38,418 | ) | 2,109,239 | ||||||||||
Q4 2008 |
$ | 3.32 | 160,172 | (46,736 | ) | 2,222,675 | ||||||||||
Q1 2009 |
$ | 3.09 | 295,450 | (40,542 | ) | 2,477,583 | ||||||||||
Q2 2009 |
$ | 2.74 | 408,026 | (52,491 | ) | 2,833,118 | ||||||||||
Q3 2009 |
$ | 3.53 | 541,509 | (99,396 | ) | 3,275,231 | ||||||||||
Q4 2009 |
$ | 3.97 | 443,280 | (117,519 | ) | 3,600,992 | ||||||||||
Q1 2010 |
$ | 3.65 | 478,518 | (117,617 | ) | 3,961,893 | ||||||||||
Q2 2010 |
$ | 4.31 | 400,549 | (116,273 | ) | 4,246,169 | ||||||||||
Q3 2010 |
$ | 2.90 | 423,310 | (144,895 | ) | 4,524,584 |
In North America, we noted a trend of decreasing average cost per acquisition of a new
subscriber (CPA) in 2009 after a period of increasing CPA and a decrease in CPA in the second and
third quarters of 2010 from the first quarter of 2010. We do not consider the decreases in CPA to
be indicative of a longer-term trend or to indicate that our CPA is likely to stay at this level or
is likely to decrease further.
In Europe, we see a large fluctuation in the CPA. The CPA fluctuates from quarter to quarter
and from country to country. The decline in CPA in Europe in the fourth quarter of 2008 reflects
the change in the exchange rates between the third quarter of 2008 and the fourth quarter of 2008
and accounted for $0.51 of the decrease in the CPA. The decrease in CPA in the third quarter of
2010 from the second quarter of 2010 is in part due to an improved method of subscriber
acquisition. We do not consider this decrease in CPA to be indicative of a longer-term trend or to
indicate that our CPA is likely to stay at this level or is likely to decrease further.
Future increases in CPA are likely to result in higher absolute marketing expenses and
potentially higher relative marketing expenses as a percentage of revenue. Going forward, we expect
continued upward pressure on online advertising rates and continued activity from competitors,
which will likely increase our CPA over the long term. The effect on operations is that greater
absolute and relative marketing expenditures may be necessary to continue to grow the reach of our
publications. However, it is possible that the factors driving subscriber acquisition cost
increases can be partially or completely offset by new or improved methods of subscriber
acquisition using techniques which are under evaluation.
Segment Information
We have presented the business segments in this report based on our organizational structure
as of September 30, 2010.
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North America
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net revenues |
$ | 21,253 | $ | 18,914 | $ | 65,844 | $ | 58,682 | ||||||||
Income from operations |
5,457 | 3,630 | 18,310 | 13,898 | ||||||||||||
Income from operations as a % of revenues |
25.7 | % | 19.2 | % | 27.8 | % | 23.7 | % |
In North America, revenues increased $2.3 million, or 12%, for the three months ended
September 30, 2010 compared to the same period in 2009 (see Revenues above). Sales and marketing
expense increased to $9.5 million, or 45% of revenue, for the three months ended September 30, 2010
from $9.2 million, or 49% of revenue, for the three months ended September 30, 2009. The $230,000
increase in sales and marketing expense was primarily due to a $723,000 increase in marketing
expenses for Fly.com and a $446,000 increase in salary and employee related expenses, offset by a
$647,000 decrease in advertising to acquire new subscribers for our e-mail products and a $452,000
decrease in advertising to acquire traffic to our websites. General and administrative expenses
increased to $4.9 million, or 23% of revenue, for the three months ended September 30, 2010 from
$4.7 million, or 25% of revenue, for the three months ended September 30, 2009. The $166,000
increase in general and administrative expense was primarily due to a $182,000 increase in salary
and employee related expenses. Income from operations for North America as a percentage of revenue
for the three months ended September 30, 2010 compared to the three months ended September 30, 2009
increased to 25.7% from 19.2%.
In North America, revenues increased $7.2 million, or 12%, for the nine months ended September
30, 2010 compared to the same period in 2009 (see Revenues above). Sales and marketing expense
increased to $29.2 million, or 44% of revenue, for the nine months ended September 30, 2010 from
$27.6 million, or 47% of revenue, for the nine months ended September 30, 2009. The $1.6 million
increase in sales and marketing expense was primarily due to a $1.5 million increase in salary and
employee related expenses and a $1.5 million increase in marketing expenses for Fly.com, offset by
a $1.1 million decrease in advertising to acquire new subscribers for our e-mail products and a
$609,000 decrease in advertising to acquire traffic to our websites. General and administrative
expenses increased to $14.1 million, or 21% of revenue, for the nine months ended September 30,
2010 from $13.4 million, or 23% of revenue, for the nine months ended September 30, 2009. The
$760,000 increase in general and administrative expense was primarily due to a $578,000 increase in
salary and employee related expenses and a $212,000 increase in bank and merchant account fees.
Income from operations for North America as a percentage of revenue for the nine months ended
September 30, 2010 compared to the nine months ended September 30, 2009 increased to 27.8% from
23.7%.
Europe
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net revenues |
$ | 6,511 | $ | 4,750 | $ | 18,680 | $ | 11,750 | ||||||||
Income (loss) from operations |
248 | (1,317 | ) | (1,511 | ) | (3,661 | ) | |||||||||
Income (loss) from operations as a % of revenues |
3.8 | % | (27.7 | %) | (8.1 | %) | (31.1 | %) |
In Europe, revenues increased $1.8 million, or 37%, for the three months ended September 30,
2010 compared to the same period in 2009 (see Revenues above). Sales and marketing expenses
remain unchanged at $4.2 million, or 64% and 88% of revenue, for the three months ended September
30, 2010 and 2009, respectively. General and administrative expenses increased to $1.8 million, or
28% of revenue, for the three months ended September 30, 2010 from $1.7 million, or 36% of revenue,
for the three months ended September 30, 2009. Our income from operations in Europe was $248,000
for the three months ended September 30, 2010 compared to a loss from operations of $1.3 million
for the three months ended September 30, 2009.
In Europe, revenues increased $6.9 million, or 59%, for the nine months ended September 30,
2010 compared to the same period in 2009 (see Revenues above). Sales and marketing expenses
increased to $13.4 million, or 72% of revenue, for the nine months ended September 30, 2010 from
$9.8 million, or 84% of revenue, for the nine months ended September 30, 2009. The $3.6 million
increase in sales and marketing expense was primarily due to a $1.0 million increase in salary and
employee related expenses due primarily to an increase in headcount, a $952,000 increase in
advertising to acquire traffic to our websites, a $757,000 increase in
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advertising to acquire new subscribers for our e-mail products, and a $593,000 increase in
marketing expenses for Fly.com. General and administrative expenses increased to $5.9 million, or
32% of revenue, for the nine months ended September 30, 2010 from $5.2 million, or 45% of revenue,
for the nine months ended September 30, 2009. The $675,000 increase in general and administrative
expense was primarily due to a $428,000 increase in professional services expenses and a $220,000
increase in rent and office expense. Our loss from operations in Europe was $1.5 million for the
nine months ended September 30, 2010 compared to a loss of $3.7 million for the nine months ended
September 30, 2009.
Income Taxes
Our income is generally taxed in the U.S. and our income tax provisions reflect federal and
state statutory rates applicable to our levels of income and expenses, adjusted to take into
account expenses that are treated as having no recognizable tax benefit. We recorded income tax
provisions of $2.1 million and $1.3 million relating to income from continuing operations for the
three months ended September 30, 2010 and September 30, 2009, respectively. For the three months
ended September 30, 2010 and 2009, our effective tax rates were 37% and 50%, respectively. Our
effective tax rate decreased for the three months ended September 30, 2010 compared to 2009, due
primarily to the decrease in losses from our Europe business segments which were treated as having
no recognizable tax benefit.
We recorded income tax provisions of $7.4 million and $5.3 million relating to income from
continuing operations for the nine months ended September 30, 2010 and September 30, 2009,
respectively. For the nine months ended September 30, 2010 and 2009, our effective tax rates were
44% and 52%, respectively. Our effective tax rate decreased for the nine months ended September 30,
2010 compared to 2009, due primarily to the decrease in losses from our Europe business segments
which were treated as having no recognizable tax benefit.
We expect that our effective tax rate in future periods may fluctuate depending on the total
amount of expenses representing payments to former stockholders, from losses or gains incurred by
our operations in Canada and Europe and corresponding U.S. tax credits, if any.
In the third quarter of 2010, the Company reached a final settlement with the Internal Revenue
Service with regards to the examination of the Companys 2005 and 2006 tax years, as a result of
which the Company paid additional taxes of approximately $544,000, including interest, and recorded
a tax benefit of approximately $202,000 due to the release of previously established tax
liabilities and related interest.
Discontinued Operations
On October 31, 2009, we completed the sale of our Asia Pacific operating segment to Azzurro
Capital Inc. and its wholly-owned subsidiaries, Travelzoo (Asia) Limited and Travelzoo Japan K.K.
The results of operations of the Asia Pacific operating segment have been classified as
discontinued operations for all periods presented. We received $3.1 million, net of cash provided,
of which $2.1 was received at the completion of the sale in 2009 and the balance was received in
March 2010. We realized a gain of $3.4 million related to the sale of the net assets of the Asia
Pacific business segment to Azzurro Capital Inc. which was reflected as an addition to additional
paid-in capital as both the Company and Azzurro Capital Inc. are under the common control of Ralph
Bartel. We recorded a tax benefit of $4.4 million in discontinued operations for the tax benefit
associated with the loss on investments in the Asia Pacific subsidiaries as a result of their
dissolution.
Liquidity and Capital Resources
As of September 30, 2010, we had $34.7 million in cash and cash equivalents. Cash and cash
equivalents increased from $19.8 million as of December 31, 2009 primarily as a result of cash
provided by operating activities and financing activities as explained below. We expect that cash
on hand will be sufficient to provide for working capital needs for at least the next 12 months.
Nine Months Ended September 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Net cash provided by operating activities |
$ | 15,099 | $ | 2,719 | ||||
Net cash used in investing activities |
(1,142 | ) | (3,368 | ) | ||||
Net cash provided by financing activities |
1,073 | 2,158 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(89 | ) | 6 | |||||
Net increase in cash and cash equivalents |
$ | 14,941 | $ | 1,515 | ||||
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Cash provided by operating activities is net income adjusted for certain non-cash items and
changes in assets and liabilities. Net cash provided by operating activities for the nine months
ended September 30, 2010 increased by $12.4 million compared to the nine months ended September 30,
2009. The $12.4 million increase in cash provided by operating activities was due primarily to a
$9.5 million increase in net income and a $4.3 million decrease in our income tax receivable,
offset by a $2.9 million increase in accounts receivable as of September 30, 2010 compared to
December 31, 2009.
Net cash used in investing activities was $1.1 million for the nine months ended September 30,
2010 compared to $3.4 million for the nine months ended September 30, 2009. The $2.2 million
decrease in cash used in investing activities was due primarily to a $466,000 decrease in purchases
of property and equipment and we used $1.8 million to purchase the fly.com domain name during the
nine months ended September 30, 2009.
Net cash provided by financing activities was $1.1 million for the nine months ended September
30, 2010 compared to $2.2 million for the nine months ended September 30, 2009. For the nine months
ended September 30, 2010, net cash provided by financing activities was due to proceeds received
from sale of our Asia Pacific business segment. For the nine months ended September 30, 2009, net
cash provided by financing activities was due to the exercise of stock options.
Our capital requirements depend on a number of factors, including market acceptance of our
products and services, the amount of our resources we devote to the development of new products,
cash payments to former stockholders of Travelzoo.com Corporation, expansion of our operations, and
the amount of resources we devote to promoting awareness of the Travelzoo and Fly.com brands. Since
the inception of the program under which we would make cash payments to people who establish that
they were former stockholders of Travelzoo.com Corporation, and who failed to submit requests to
convert their shares into shares of Travelzoo Inc. within the required time period, we have
incurred expenses of $2.7 million. While future payments for this program are expected to decrease,
the total cost of this program is still undeterminable because it is dependent on our stock price
and on the number of valid requests ultimately received. Consistent with our growth, we have
experienced substantial increases in our cost of revenues, sales and marketing expenses and our
general and administrative expenses, and we anticipate that these increases will continue for the
foreseeable future. We believe cash on hand will be sufficient to pay such costs. In addition, we
will continue to evaluate possible investments in businesses, products and technologies, the
consummation of any of which would increase our capital requirements.
Although we currently believe that we have sufficient capital resources to meet our
anticipated working capital and capital expenditure requirements for at least the next 12 months,
unanticipated events and opportunities or a less favorable than expected development of our
business in Europe may require us to sell additional equity or debt securities or establish new
credit facilities to raise capital in order to meet our capital requirements.
If we sell additional equity or convertible debt securities, the sale could dilute the
ownership of our existing stockholders. If we issue debt securities or establish a new credit
facility, our fixed obligations could increase, and we may be required to agree to operating
covenants that would restrict our operations. We cannot be sure that any such financing will be
available in amounts or on terms acceptable to us.
If the development of our business in Europe is less favorable than expected, we may decide to
significantly reduce the size of our operations and marketing expenses in Europe with the objective
of reducing cash outflow. For the nine months ended September 30, 2010, cash used in operating
activities in Europe was $1.1 million.
The following summarizes our principal contractual commitments as of September 30, 2010 (in
thousands):
2010 | 2011 | 2012 | 2013 | 2014 | Total | |||||||||||||||||||
Operating leases |
$ | 1,056 | $ | 3,062 | $ | 2,033 | $ | 1,924 | $ | 161 | $ | 8,236 | ||||||||||||
Purchase obligations |
617 | 1,931 | 176 | | | 2,724 | ||||||||||||||||||
Total commitments |
$ | 1,673 | $ | 4,993 | $ | 2,209 | $ | 1,924 | $ | 161 | $ | 10,960 | ||||||||||||
We also have contingencies related to net unrecognized tax benefits of approximately $1.4
million as of September 30, 2010, which we are unable to make reasonably reliable estimates on the
timing of the cash settlements with the respective taxing authorities.
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Growth Strategy
Our growth strategy has three main elements:
| International expansion: We want to grow our revenue and operating profit through replicating the Travelzoo business in attractive international markets in Europe and in North America. We want to develop a strong competitive position through building a strong global brand and unique global content. | ||
| Expand scope of the Travelzoo business: We want to grow our revenue and operating profit through expanding the Travelzoo product offerings and content into entertainment and lifestyle (e.g., Broadway shows, sporting events, restaurants and spas). | ||
| Fly.com: We want to grow revenue and operating profits through building up Fly.com, our new meta-search engine for airfares. We have identified meta-search as an opportunity with attractive economics and great synergies with Travelzoo. |
We launched the Travelzoo business in the U.K. in 2005, in Canada in 2006, in Germany in 2006,
in France in 2007, and in Spain in 2008. We began developing and offering entertainment content and
related advertising services in 2008. We launched Fly.com in February 2009. In August 2010, we
launched Local Deals, a new service that allows our subscribers to purchase vouchers for deals from
local businesses such as spas and restaurants. The vouchers are then redeemable at the local
businesses during the promotional period in which the deals are offered.
Recent Accounting Standards
In June 2009, the FASB issued a new accounting standard that changes the consolidation model
for variable interest entities. The new accounting standard requires a company to perform
qualitative analysis when determining whether it must consolidate a variable interest entity and
ongoing reassessments to determine if a company must consolidate a variable interest entity. The
new accounting standard also requires a company to provide additional disclosures about the nature
of restrictions on a consolidated variable interest entitys assets, its involvement with variable
interest entities, any significant changes in risk exposure due to that involvement and how its
involvement with a variable interest entity affects the companys financial statements. A company
will also be required to disclose any significant judgments and assumptions made in determining
whether it must consolidate a variable interest entity. Effective January 1, 2010, we adopted this
new accounting standard. The adoption of this new accounting standard did not have an impact on our
consolidated results of operations or financial condition.
In October 2009, the FASB issued ASU 2009-13, a new accounting standard update for revenue
recognition with multiple deliverables. The new accounting standard update defines when individual
deliverables included in a multiple-element arrangement may be treated as separate units of
accounting. The update primarily provides two significant changes: 1) it eliminates the need for
objective and reliable evidence of the fair value for the undelivered element in order for a
delivered item to be treated as a separate unit of accounting, and 2) it eliminates the residual
method to allocate the arrangement consideration. In addition, the update also expands the
disclosure requirements for revenue recognition. The new accounting standard update will be
effective for us January 1, 2011, with early adoption permitted. We are currently assessing the
future impact of this new accounting standard on our consolidated results of operations and
financial condition.
RISK FACTORS
Investing in our common stock involves a high degree of risk. Any or all of the risks listed
below as well as other variables affecting our operating results could have a material adverse
effect on our business, our quarterly and annual operating results or financial condition, which
could cause the market price of our stock to decline or cause substantial volatility in our stock
price, in which event the value of your common stock could decline. You should also keep these risk
factors in mind when you read forward-looking statements.
Risks Related to Our Financial Condition and Business Model
We cannot assure you that we will be profitable.
For the three and nine months ended September 30, 2010, we generated net income of $3.7
million and $9.4 million, respectively. In the year ended December 31, 2009, we generated a net
income of $5.2 million. Although we were profitable in 2009 and in the three and nine months ended
September 30, 2010, we incurred a net loss in 2008, and there is no assurance that we will continue
to be profitable in the future. We forecast our future expense levels based on our operating plans
and our estimates of future revenues. We may find it necessary to significantly accelerate
expenditures relating to our sales and marketing efforts or otherwise increase our financial
commitment to creating and maintaining brand awareness among Internet users and travel companies.
If our revenues grow
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at a slower rate than we anticipate, or if our spending levels exceed our expectations or
cannot be adjusted to reflect slower revenue growth, we may not generate sufficient revenues to be
profitable. Although our operations in Europe generated an operating profit of $248,000 for the
three months ended September 30, 2010, it generated an operating loss of $1.5 million for the nine
months ended September 30, 2010, and there is no assurance that our operations in Europe will
generate an operating income in the future. Any of these developments could result in a significant
decrease in the trading price of our common stock.
Fluctuations in our operating results may negatively impact our stock price.
Our quarterly and annual operating results may fluctuate significantly in the future due to a
variety of factors that could affect our revenues or our expenses in any particular period. You
should not rely on quarter-to-quarter comparisons of our results of operations as an indication of
future performance. Factors that may affect our quarterly results include:
| mismatches between resource allocation and client demand due to difficulties in predicting client demand in a new market; | ||
| changes in general economic conditions that could affect marketing efforts generally and online marketing efforts in particular; | ||
| the magnitude and timing of marketing initiatives, including our acquisition of new subscribers and our expansion efforts in other regions; | ||
| the introduction, development, timing, competitive pricing and market acceptance of our products and services and those of our competitors; | ||
| our ability to attract and retain key personnel; | ||
| our ability to manage our anticipated growth and expansion; | ||
| our ability to attract traffic to our websites; | ||
| technical difficulties or system downtime affecting the Internet generally or the operation of our products and services specifically; | ||
| payments which we may make to previous stockholders of Travelzoo.com Corporation who failed to submit requests for shares in Travelzoo Inc. within the required time period, or escheat claims related to shares not issued in the Companys merger with Travelzoo.com Corporation; and | ||
| volatility of our operating results in new markets. |
We may significantly increase our operating expenses related to advertising campaigns for
Travelzoo for a certain period if we see a unique opportunity for a brand marketing campaign, if we
find it necessary to respond to increased brand marketing by a competitor, or if we decide to
accelerate our acquisition of new subscribers.
If revenues fall below our expectations in any quarter and we are unable to quickly reduce our
operating expenses in response, our operating results would be lower than expected and our stock
price may fall.
Our business model may not be adaptable to a changing market.
Our current revenue model depends on advertising fees paid primarily by travel and
entertainment companies. If current clients decide not to continue advertising their offers with us
and we are unable to replace them with new clients, our business may be adversely affected. To be
successful, we must provide online marketing solutions that achieve broad market acceptance by
travel and entertainment companies. In addition, we must attract sufficient Internet users with
attractive demographic characteristics to our products. It is possible that we will be required to
further adapt our business model in response to changes in the online advertising market or if our
current business model is not successful. If we are not able to anticipate changes in the online
advertising market or if our business model is not successful, our business could be materially
adversely affected.
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We may not be able to obtain sufficient funds to grow our business and any additional financing may
be on terms adverse to your interests.
During the nine months ended September 30, 2010, our cash and cash equivalents increased by
$14.9 million to $34.7 million. We intend to continue to grow our business, and intend to fund our
current operations and anticipated growth from the cash on hand. However, this may not be
sufficient to meet our needs. We may not be able to obtain financing on commercially reasonable
terms, or at all.
If additional financing is not available when required or is not available on acceptable
terms, we may be unable to fund our expansion, successfully promote our brand name, develop or
enhance our products and services, take advantage of business opportunities, or respond to
competitive pressures, any of which could have a material adverse effect on our business.
If we choose to raise additional funds through the issuance of equity securities, you may
experience significant dilution of your ownership interest and holders of the additional equity
securities may have rights senior to those of the holders of our common stock. If we obtain
additional financing by issuing debt securities, the terms of these securities could restrict or
prevent us from paying dividends and could limit our flexibility in making business decisions.
Our business may be sensitive to recessions.
The demand for online advertising may be linked to the level of economic activity and
employment in the U.S. and abroad. Specifically, our business is primarily dependent on the demand
for online advertising from travel and entertainment companies. The recent recession decreased
consumer travel and caused travel and entertainment companies to reduce or postpone their marketing
spending generally, and their online marketing spending in particular. Continued or future
recessions could have a material adverse effect on our business and financial condition.
Our operations could be significantly hindered by the occurrence of a natural disaster or other
catastrophic event.
Our operations are susceptible to outages due to fire, floods, power loss, telecommunications
failures, unexpected technical problems in the systems that power our websites and distribute our
e-mail newsletters, break-ins and similar events. In addition, a significant portion of our network
infrastructure is located in Northern California, an area susceptible to earthquakes. We do not
have multiple site capacity in the event of any such occurrence. Outages could cause significant
interruptions of our service. In addition, despite our implementation of network security measures,
our servers are vulnerable to computer viruses, physical and electronic break-ins, and similar
disruptions from unauthorized tampering with our computer systems. We do not carry business
interruption insurance to compensate us for losses that may occur as a result of any of these
events.
Technological or other assaults on our service could harm our business.
We are vulnerable to coordinated attempts to overload our systems with data, which could
result in denial or reduction of service to some or all of our users for a period of time. We have
experienced denial of service attacks in the past, and may experience such attempts in the future.
Any such event could reduce our revenue and harm our operating results and financial condition. We
do not carry business interruption insurance to compensate us for losses that may occur as a result
of any of these events.
Risks Related to Our Markets and Strategy
Our international expansion is expected to result in substantial operating losses, and is subject
to other material risks.
In May 2005, we began operations in the U.K. In 2006, we began operations in Canada, Germany,
and Spain. In 2007, we began operations in France.
Although our revenues in Europe increased 59% in the nine months ended September 30, 2010 from
the same period last year, we expect our operations in Europe will continue to incur losses through
the end of 2010 primarily as a result of significant expenses related to subscriber acquisition and
the launch of Fly.com. We intend to continue adding a significant number of subscribers in selected
countries in which we operate as we believe this is one of the factors that will allow us to
increase our advertising rates and increase our revenues in Europe.
The losses from our operations in Europe may not have any recognizable tax benefit. We expect
that this will have a material negative impact on our net income and cash flows. Any of these
developments could result in a significant decrease in the trading
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price of our common stock. In addition to uncertainty about our ability to generate net income
from our foreign operations and expand our international market position, there are certain risks
inherent in doing business internationally, including:
| trade barriers and changes in trade regulations; | ||
| difficulties in developing, staffing and simultaneously managing foreign operations as a result of distance, language and cultural differences; | ||
| stringent local labor laws and regulations; | ||
| currency exchange rate fluctuations; | ||
| risks related to government regulation; and | ||
| potentially adverse tax consequences. |
We may not be able to continue developing awareness of our brand names.
We believe that continuing to build awareness of the Travelzoo and Fly.com brand names is
critical to achieving widespread acceptance of our business. Brand recognition is a key
differentiating factor among providers of online advertising opportunities, and we believe it could
become more important as competition in our industry increases. In order to maintain and build
brand awareness, we must succeed in our marketing efforts. If we fail to successfully promote and
maintain our brand, incur significant expenses in promoting our brand and fail to generate a
corresponding increase in revenue as a result of our branding efforts, or encounter legal obstacles
which prevent our continued use of our brand name, our business could be materially adversely
affected.
Our business may be sensitive to events affecting the travel industry in general.
Events like the war with Iraq or the terrorist attacks on the U.S. in 2001 or the recent
global financial crisis have a negative impact on the travel industry. We are not in a position to
evaluate the net effect of these circumstances on our business. In the longer term, our business
might be negatively affected by financial pressures on the travel industry. However, our business
may also benefit if travel companies increase their efforts to promote special offers or other
marketing programs. If such events result in a long-term negative impact on the travel industry,
such impact could have a material adverse effect on our business.
We will not be able to attract travel and entertainment companies or Internet users if we do not
continually enhance and develop the content and features of our products and services.
To remain competitive, we must continually improve the responsiveness, functionality, and
features of our products and services. We may not succeed in developing features, functions,
products, or services that travel and entertainment companies and Internet users find attractive.
This could reduce the number of travel and entertainment companies and Internet users using our
products and materially adversely affect our business.
We may lose business if we fail to keep pace with rapidly changing technologies and client needs.
Our success is dependent on our ability to develop new and enhanced software, services, and
related products to meet rapidly evolving technological requirements for online advertising. Our
current technology may not meet the future technical requirements of travel and entertainment
companies. Trends that could have a critical impact on our success include:
| rapidly changing technology in online advertising; | ||
| evolving industry standards, including both formal and de facto standards relating to online advertising; | ||
| developments and changes relating to the Internet; | ||
| competing products and services that offer increased functionality; and | ||
| changes in travel company, entertainment company, and Internet user requirements. |
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If we are unable to timely and successfully develop and introduce new products and
enhancements to existing products in response to our industrys changing technological
requirements, our business could be materially adversely affected.
Our business and growth will suffer if we are unable to hire and retain highly skilled personnel.
Our future success depends on our ability to attract, train, motivate, and retain highly
skilled employees. We may be unable to retain our skilled employees, or attract, assimilate, and
retain other highly skilled employees in the future. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications. If we are unable to hire and
retain skilled personnel, our growth may be restricted, which could adversely affect our future
success.
We may not be able to effectively manage our expanding operations.
Since the commencement of our operations, we have experienced a period of rapid growth. In
order to execute our business plan, we must continue to grow significantly. As of September 30,
2010, we had 232 employees. We expect that the number of our employees will continue to increase
for the foreseeable future. This growth has placed, and our anticipated future growth will continue
to place, a significant strain on our management, systems, and resources. We expect that we will
need to continue to improve our financial and managerial controls and reporting systems and
procedures. We will also need to continue to expand and maintain close coordination among our
sales, production, marketing, IT, and finance departments. We may not succeed in these efforts. Our
inability to expand our operations in an efficient manner could cause our expenses to grow
disproportionately to revenues, our revenues to decline or grow more slowly than expected and could
otherwise have a material adverse effect on our business.
Our operations may be adversely affected by changes in our senior management.
On November 18, 2009, the Company entered into an employment agreement with Christopher
Loughlin, the Companys former Executive Vice President, Europe, under which, effective July 1,
2010, Mr. Loughlin replaced Holger Bartel as Chief Executive Officer. Mr. Loughlin served as the
Companys Vice President of Business Development from 2001 to 2005 and served as the Companys
Senior Vice President and General Manager, Travelzoo U.K. from 2005 to 2006. From 2006 to June 30,
2010, Mr. Loughlin served as the Companys Executive Vice President, Europe, and has extensive
familiarity with the business and operations of the Company. However, there can be no assurances
that these changes in the senior management of the Company will not have an adverse effect on the
business of the Company, temporarily or otherwise.
Intense competition may adversely affect our ability to achieve or maintain market share and
operate profitably.
We face intense competition. We compete for advertising dollars with large Internet portal
sites, such as America Online, MSN, and Yahoo!, that offer listings or other advertising
opportunities for travel and entertainment companies. These companies have significantly greater
financial, technical, marketing, and other resources and larger client bases. We compete with
search engines like Google and Yahoo! Search that offer pay-per-click listings. We compete with
travel meta-search engines and online travel deal publishers. We compete with large online travel
agencies like Expedia and Priceline that also offer advertising placements. We compete with
companies like Groupon and LivingSocial that also sell vouchers for deals from local businesses
such as spas and restaurants. In addition, we compete with newspapers, magazines, and other
traditional media companies that operate websites which provide online advertising opportunities.
We expect to face additional competition as other established and emerging companies, including
print media companies, enter the online advertising market. Competition could result in reduced
margins on our services, loss of market share, or less use of Travelzoo by travel companies,
entertainment companies, and consumers. If we are not able to compete effectively with current or
future competitors as a result of these and other factors, our business could be materially
adversely affected.
Loss of any of our key management personnel could negatively impact our business.
Our future success depends to a significant extent on the continued service and coordination
of our management team, particularly Christopher Loughlin, our Chief Executive Officer. The loss or
departure of any of our officers or key employees could materially adversely affect our ability to
implement our business plan. We do not maintain key person life insurance for any member of our
management team. In addition, we expect new members to join our management team in the future.
These individuals will not previously have worked together and will be required to become
integrated into our management team. If our key management personnel are not able to work together
effectively or successfully, our business could be materially adversely affected.
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We may not be able to access third party technology upon which we depend.
We use technology and software products from third parties including Microsoft and ITA
Software. Technology from our current or other vendors may not continue to be available to us on
commercially reasonable terms, or at all. Our business will suffer if we are unable to access this
technology, to gain access to additional products or to integrate new technology with our existing
systems. This could cause delays in our development and introduction of new services and related
products or enhancements of existing products until equivalent or replacement technology can be
accessed, if available, or developed internally, if feasible. If we experience these delays, our
business could be materially adversely affected.
Risks Related to the Market for our Shares
Our stock price has been volatile historically and may continue to be volatile.
The trading price of our common stock has been and may continue to be subject to wide
fluctuations. During the twelve months ended October 31, 2010, the closing price of our common
stock has ranged from $10.43 to $35.71. Our stock price may fluctuate in response to a number of
events and factors, such as quarterly variations in operating results; announcements of
technological innovations or new products by us or our competitors; changes in financial estimates
and recommendations by securities analysts; the operating and stock price performance of other
companies that investors may deem comparable to us; and news reports relating to trends in our
markets or general economic conditions.
In addition, the stock market in general, and the market prices for Internet-related companies
in particular, have experienced volatility that often has been unrelated to the operating
performance of such companies. These broad market and industry fluctuations may adversely affect
the price of our stock, regardless of our operating performance.
We are controlled by a principal stockholder.
Ralph Bartel, who founded Travelzoo and who is a Director of Travelzoo, is our largest
stockholder, holding beneficially, as of November 1, 2010, approximately 66.3% of our outstanding
shares. Through his share ownership, he is in a position to control Travelzoo and to elect our
entire board of directors.
Risks Related to Legal Uncertainty
We may become subject to burdensome government regulations and legal uncertainties affecting the
Internet which could adversely affect our business.
To date, governmental regulations have not materially restricted use of the Internet in our
markets. However, the legal and regulatory environment that pertains to the Internet is uncertain
and may change. Uncertainty and new regulations could increase our costs of doing business, prevent
us from delivering our products and services over the Internet, or slow the growth of the Internet.
In addition to new laws and regulations being adopted, existing laws may be applied to the
Internet. New and existing laws may cover issues which include:
| user privacy; | ||
| anti-spam legislation; | ||
| consumer protection; | ||
| copyright, trademark and patent infringement; | ||
| pricing controls; | ||
| characteristics and quality of products and services; | ||
| sales and other taxes; and | ||
| other claims based on the nature and content of Internet materials. |
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We may be liable as a result of information retrieved from or transmitted over the Internet.
We may be sued for defamation, negligence, copyright or trademark infringement or other legal
claims relating to information that is published or made available in our products. These types of
claims have been brought, sometimes successfully, against online services in the past. The fact
that we distribute information via e-mail may subject us to potential risks, such as liabilities or
claims resulting from unsolicited e-mail or spamming, lost or misdirected messages, security
breaches, illegal or fraudulent use of e-mail or interruptions or delays in e-mail service. In
addition, we could incur significant costs in investigating and defending such claims, even if we
ultimately are not liable. If any of these events occur, our business could be materially adversely
affected.
Claims may be asserted against us relating to shares not issued in our 2002 merger, including
claims which may arise under the current Delaware unclaimed property review.
The merger of Travelzoo.com Corporation into the Company became effective on April 25, 2002.
Stockholders of Travelzoo.com Corporation were allowed a period of two years following the
effective date to receive shares in the Company. After April 25, 2004, two years following the
effective date, we ceased issuing shares to the former stockholders of Travelzoo.com Corporation.
Many of the Netsurfer stockholders, who had applied to receive shares of Travelzoo.com
Corporation in 1998 for no cash consideration, did not elect to receive their shares which were
issuable in the merger prior to the end of the two-year period. A total of 4,115,532 of our shares
which had been reserved for issuance in the merger were not claimed.
It is possible that claims may be asserted against us in the future by former stockholders of
Travelzoo.com Corporation seeking to receive our shares, whether based on a claim that the two-year
deadline for exchanging their shares was unenforceable or otherwise. In addition, one or more
jurisdictions, including the Bahamas or the State of Delaware, may assert rights to unclaimed
shares under escheat statutes. As indicated below, the Company is currently the subject of an
unclaimed property review by representatives of the State of Delaware. If such escheat claims are
asserted, whether as a result of such unclaimed property review or otherwise, we intend to
challenge the applicability of escheat rights in that, among other reasons, the identity, residency
and eligibility of the holders in question cannot be determined. There were certain conditions
applicable to the issuance of shares to the Netsurfer stockholders, including requirements that (i)
they be at least 18 years of age, (ii) they be residents of the U.S. or Canada and (iii) they not
apply for shares more than once. The Netsurfer stockholders were required to confirm their
compliance with these conditions, and were advised that failure to comply could result in
cancellation of their shares in Travelzoo.com Corporation. Travelzoo.com Corporation was not able
to verify that the applicants met the requirements referred to above at the time of their
applications for issuance of shares. If claims are asserted by persons claiming to be former
stockholders of Travelzoo.com Corporation, we intend to assert that their rights to receive their
shares expired two years following the effective date of the merger, as provided in the merger
agreement. We also expect to take the position, if escheat or similar claims are asserted in
respect of the unissued shares in the future, that we are not required to issue such shares.
Further, even if it were established that unissued shares were subject to escheat claims, we would
assert that the claimant must establish that the original Netsurfer stockholders complied with the
conditions to issuance of their shares. We are not able to predict the outcome of any future claims
which might be asserted relating to the unissued shares. If such claims were asserted, and were
fully successful, that could result in us being required to issue up to an additional 4,067,000
shares of common stock for no additional payment, which would result in substantial dilution of the
ownership interests of the other stockholders, and in our earnings per share, which could adversely
affect the market price of the common stock.
Representatives of the State of Delaware are currently conducting an unclaimed property review
of the Company. In response to information requests in this review, the Company has provided
information concerning uncashed checks and other unclaimed property which may be in the custody of
the Company. It is the Companys understanding that, if it holds unclaimed property of third
parties whose addresses are unknown, that property may be subject to escheat to the State of
Delaware, because it is the jurisdiction of incorporation of the Company. In the review, the
Company has also been requested to provide, and has provided, information concerning the unissued
shares referred to above. No escheat claims have been asserted in respect of any such unissued
shares, but it is possible that such claims may be asserted as a result of the review. The Company
is unable to predict the outcome of the unclaimed property review.
On October 15, 2004, we announced a program under which we would make cash payments to people
who establish that they were former stockholders of Travelzoo.com Corporation, and who failed to
submit requests to convert shares into Travelzoo Inc. within the required time period. The
accompanying condensed consolidated financial statements include a charge in general and
administrative expenses of $10,000 for these cash payments for the nine months ended September 30,
2010. The total cost of this program is not reliably estimable because it is based on the ultimate
number of valid requests received and future levels of our common stock price. Our 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. We do not know how
many of the requests for shares originally received by Travelzoo.com Corporation in 1998 were
valid, but we believe that only a portion of such requests were valid. As noted above, in order to
receive payment under the program, a person is required to establish that such person validly held
shares in Travelzoo.com
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Corporation. Assuming 100% of the requests from 1998 were valid, former stockholders of
Travelzoo.com Corporation holding approximately 4,067,000 shares had not submitted claims under the
program as of September 30, 2010.
Our internal controls over financial reporting may not be effective, and our independent auditors
may not be able to certify as to the effectiveness of such internal controls, which could have a
significant and adverse effect on our business.
We are obligated to evaluate our internal controls over financial reporting in order to allow
management to report on, and our independent auditors to opine on, our internal controls over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and
regulations of the SEC, which we collectively refer to as Section 404. In our Section 404
evaluation, we have identified areas of internal controls that may need improvement and have
instituted remediation efforts where necessary. Currently, none of our identified areas that need
improvement has been categorized as material weaknesses. We may identify conditions that may result
in significant deficiencies or material weaknesses in the future.
We may be unable to protect our registered trademark or other proprietary intellectual property
rights.
Our success depends to a significant degree upon the protection of the Travelzoo brand name.
We rely upon a combination of copyright, trade secret and trademark laws and non-disclosure and
other contractual arrangements to protect our intellectual property rights. The steps we have taken
to protect our proprietary rights, however, may not be adequate to deter misappropriation of
proprietary information.
We have registered the Travelzoo trademark in the U.S., Australia, Canada, China, Hong Kong,
Japan, South Korea, Taiwan, and the U.K. If we are unable to protect our rights in the mark in
North America, Europe, and Asia Pacific, where we have licensed the trademark as described above
under overview, a key element of our strategy of promoting Travelzoo as a brand could be
disrupted and our business could be adversely affected. We may not be able to detect unauthorized
use of our proprietary information or take appropriate steps to enforce our intellectual property
rights. In addition, the validity, enforceability, and scope of protection of intellectual property
in Internet-related industries are uncertain and still evolving. The laws of countries in which we
may market our services in the future are uncertain and may afford little or no effective
protection of our intellectual property. The unauthorized reproduction or other misappropriation of
our proprietary technology could enable third parties to benefit from our technology and brand name
without paying us for them. If this were to occur, our business could be materially adversely
affected.
We may face liability from intellectual property litigation that could be costly to prosecute or
defend and distract managements attention with no assurance of success.
We cannot be certain that our products, content and brand names do not or will not infringe
valid patents, copyrights or other intellectual property rights held by third parties. While we
have a trademark for Travelzoo, many companies in the industry have similar names including the
word travel. We expect that infringement claims in our markets will increase in number as more
participants enter the markets. We may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others in the ordinary course of our business. We may
incur substantial expenses in defending against these third party infringement claims, regardless
of their merit, and such claims could result in a significant diversion of the efforts of our
management personnel. Successful infringement claims against us may result in monetary liability or
a material disruption in the conduct of our business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We believe that our potential exposure to changes in market interest rates is not material.
The Company has no outstanding debt and is not a party to any derivatives transactions. We invest
in highly liquid investments with short maturities. Accordingly, we do not expect any material loss
from these investments.
Our operations in Canada expose us to foreign currency risk associated with agreements being
denominated in Canadian Dollars. Our operations in Europe expose us to foreign currency risk
associated with agreements being denominated in British Pound Sterling and Euros. We are exposed to
foreign currency risk associated with fluctuations of these currencies as the financial position
and operating results of our operations in Canada and Europe will be translated into U.S. Dollars
for consolidation purposes. We do not use derivative instruments to hedge these exposures. We are a
net receiver of U.S. Dollars from our foreign subsidiaries and therefore benefit from a weaker U.S.
dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currency used
by the foreign subsidiary as its functional currency. We have performed a sensitivity analysis as
of September 30, 2010, using a modeling technique that measures the change in the fair values
arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates
relative to the U.S. dollar with all other variables held constant. The foreign currency exchange
rates we used were based on market rates in effect at September 30, 2010. The sensitivity analysis
indicated that a hypothetical 10% adverse
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movement in foreign currency exchange rates would result in an incremental $74,000 foreign
exchange loss for the three month and nine month periods ended September 30, 2010.
Item 4. Controls and Procedures
For the period ended September 30, 2010, we carried out an evaluation, under the supervision
and with the participation of the Companys management, including the Companys Chief Executive
Officer along with the Companys Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and
15d-15(e). Based upon that evaluation, the Companys Chief Executive Officer along with the
Companys Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of September 30, 2010 to ensure that the information required to be disclosed by us in
this quarterly report was recorded, processed, summarized and reported within the time periods
specified in the SECs rules and regulations and were also effective to ensure that information
required to be disclosed by us in this quarterly report was accumulated and communicated to our
management including the Companys Chief Executive Officer and the Companys Chief Financial
Officer to allow timely decisions regarding its disclosure.
During the three months ended September 30, 2010, there was no change in our internal control
over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that materially affected, or
is reasonably likely to materially affect, the Companys internal control over financial reporting.
PART IIOTHER INFORMATION
Item 1A. Risk Factors
An updated description of the risk factors associated with our business is included under
Risk Factors in Managements Discussion and Analysis of Financial Condition and Results of
Operations, contained in Item 2 of Part I of this report. This description includes any material
changes to and supersedes the description of the risk factors associated with our business
previously disclosed in Item 1A of our 2009 Annual Report on Form 10-K and is incorporated herein
by reference.
Item 6. Exhibits
The following table sets forth a list of exhibits:
Exhibit | ||
Number | Description | |
3.1
|
Certificate of Incorporation of Travelzoo Inc. (Incorporated by reference to our Pre-Effective Amendment No. 6 to Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002). | |
3.2
|
By-laws of Travelzoo Inc. (Incorporated by reference to Pre-Effective Amendment No. 6 to our Registration Statement on Form S-4 (File No. 333-55026), filed February 14, 2002). | |
10.1*
|
Employment Agreement, dated August 4, 2010 between Shirley Tafoya and Travelzoo Inc. | |
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | This exhibit is a management contract or a compensatory plan or arrangement | |
| Filed herewith | |
| Furnished herewith |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRAVELZOO INC. (Registrant) |
||||
By: | /s/ Wayne Lee | |||
Wayne Lee | ||||
On behalf of the Registrant and as Chief Financial Officer and Principal Accounting Officer |
||||
Date: November 9, 2010
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