TRAVELZOO - FORM 8-K - EX-99.1 - EXHIBIT - January 23, 2014

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Exhibit 99.1
Travelzoo Inc.
590 Madison Avenue
37th Floor
New York, NY 10022

Media Contact:
Glen Ceremony
Chief Financial Officer
Travelzoo Inc.
+1 (212) 484-4998
pr@travelzoo.com

FOR IMMEDIATE RELEASE

Travelzoo Reports Fourth Quarter 2013 Results and Announces Share Repurchase Program

NEW YORK, January 23, 2014 - Travelzoo Inc. (NASDAQ: TZOO):

Fourth Quarter 2013 Financial Highlights:
•
Revenue of $37.5 million, up 1% year-over-year
•
Operating income of $4.5 million, up 3% year-over-year
•
Net income of $3.2 million
•
Earnings per share of $0.21, compared to $0.24 in the prior-year period
•
Cash used in operations was $1.8 million

Travelzoo Inc., a global Internet media company, today announced financial results for the fourth quarter ended December 31, 2013, with revenue of $37.5 million, an increase of 1% year-over-year. Operating income was $4.5 million, up 3% year-over-year. Net income was $3.2 million, with earnings per share of $0.21, down from $0.24 in the prior-year period.

Travelzoo also announced that its board of directors has authorized the repurchase of up to 500,000 of the company's outstanding common shares. Purchases may be made, from time to time, in the open market and will be funded from available cash. The number of shares to be purchased and the timing of purchases will be based on the level of Travelzoo's cash balances, general business and market conditions, and other factors, including alternative investment opportunities.


1/9

"Our Travel products showed continued strength in Q4, particularly in Europe, which contributed 40% of the company's profits. These gains were offset by revenue declines in SuperSearch and Fly.com," said Chris Loughlin, chief executive officer. "We will continue to invest in audience and products to spur future growth. These include our hotel booking platform, which is now in internal testing, as well as features that make it easier for our users to find deals when and where they need them, particularly on their mobile devices."

For the full year, revenue was $158.2 million, an increase of 5% year-over-year. GAAP operating income was $2.3 million, down 91% year-over-year. Non-GAAP operating income was $24.3 million, down 15% year-over-year. GAAP net loss was $5.0 million, with loss per share of $0.33, compared to earnings per share of $1.14 in the prior-year period. Non-GAAP net income was $17.0 million, with earnings per share of $1.11, down from $1.33 in the prior-year period. For the year ended December 31, 2013 and 2012, non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share exclude a $22.0 million and a $3.0 million charge related to a reserve for Travelzoo Inc.'s settlement agreements in connection with a dispute over unclaimed property audits.

North America
North America business segment revenue decreased 3% year-over-year to $25.6 million. Operating profit for the fourth quarter was $2.7 million, or 10% of revenue, down from $3.4 million, or 13% of revenue, in the prior-year period.

Europe
Europe business segment revenue increased 12% year-over-year to $11.9 million. In local currency terms, revenue increased 11% year-over-year. Operating profit for the fourth quarter was $1.8 million, or 15% of revenue, up from $1.0 million, or 9% of revenue in the prior-year period.

Search Products
In response to declining revenue and profit from its Search products, which include SuperSearch and Fly.com, the Company has initiated a performance review, which may result in merging the products, discontinuing or replacing one or both of them. "Challenges in traffic acquisition from search engines and poor monetization on mobile devices have led to continued declines in Search revenue," said Glen Ceremony, chief financial officer. "As we are reviewing these products and working on their improvement, we will also put a stronger focus on profitability, which could result in a revenue decline of approximately $1.5 million from SuperSearch versus the prior-year period."


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Subscribers
Travelzoo had a total unduplicated number of subscribers in North America and Europe of 23.3 million as of December 31, 2013, up 4% from December 31, 2012. In North America, total unduplicated number of subscribers was 16.6 million as of December 31, 2013, up 3% from December 31, 2012. In Europe, total unduplicated number of subscribers was 6.8 million as of December 31, 2013, up 6% from December 31, 2012.

Income Taxes
Income tax expense was $1.3 million, compared to $692,000 in the prior-year period. The effective income tax rate was 29%, up from 16% in the prior-year period.

Asset Management
During the fourth quarter of 2013, Travelzoo used $1.8 million of cash from operating activities. Accounts receivable increased by $360,000 over the prior-year period to $14.0 million. Accounts payable increased by $3.1 million over the prior-year period to $31.8 million. Capital expenditures were $1.9 million, up from $698,000 in the prior-year period. As of December 31, 2013, cash and cash equivalents were $66.2 million.

Non-GAAP Measures
To give an enhanced view of Travelzoo's operating performance, management has calculated non-GAAP operating expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate, non-GAAP net income and non-GAAP earnings per share by excluding the charges related to our unexchanged promotional shares. The company believes these metrics assist investors to assess certain business trends in the same way that these trends are analyzed by management. The discussion of these non-GAAP metrics are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. As the only difference between GAAP and non-GAAP measures is the charges related to our unexchanged promotional shares, today’s reporting should not be viewed as Travelzoo’s intention to report non-GAAP measures in future periods. Refer to the “Reconciliation of GAAP to Non-GAAP Measures” section of this press release for a summary of these non-GAAP measures and their reconciliation to the reported GAAP measures.

Conference Call
Travelzoo will host a conference call to discuss fourth quarter results at 11:00 a.m. ET today. Please visit http://www.travelzoo.com/earnings to
•
download the management presentation (PDF format) to be discussed in the conference call;

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•
access the webcast.

About Travelzoo
Travelzoo Inc. is a global Internet media company. With more than 26 million subscribers in North America, Europe, and Asia Pacific and 25 offices worldwide, Travelzoo® publishes deals from more than 2,000 travel and entertainment companies. Travelzoo’s deal experts review offers to find the best deals and confirm their true value. In Asia Pacific, Travelzoo is independently owned and operated by Travelzoo (Asia) Ltd. and Travelzoo Japan K.K. under a license agreement with Travelzoo Inc.


Certain statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include, but are not limited to, statements about our plans, objectives, expectations, prospects and intentions, markets in which we participate and other statements contained in this press release that are not historical facts. When used in this press release, the words “expect,” “predict,” “project,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “seek” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including changes in our plans, objectives, expectations, prospects and intentions, and other factors discussed in our filings with the SEC. We cannot guarantee any future levels of activity, performance or achievements. Travelzoo undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release. Travelzoo and Top 20 are registered trademarks of Travelzoo Inc. All other company and product names mentioned are trademarks of their respective owners.


###



4/9

Travelzoo Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended
 
Twelve months ended
 
December 31,
 
December 31,
 
2013
 
2012
 
2013
 
2012
Revenues
$
37,475

 
$
37,028

 
$
158,234

 
$
151,168

Cost of revenues
4,670

 
4,073

 
17,402

 
15,745

Gross profit
32,805

 
32,955

 
140,832

 
135,423

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
17,307

 
18,489

 
74,870

 
68,242

General and administrative
11,025

 
10,109

 
41,684

 
38,692

Unexchanged promotional shares
—

 
—

 
22,000

 
3,000

Total operating expenses
28,332

 
28,598

 
138,554

 
109,934

Income from operations
4,473

 
4,357

 
2,278

 
25,489

Other income
61

 
92

 
429

 
309

Income before income taxes
4,534

 
4,449

 
2,707

 
25,798

Income taxes
1,304

 
692

 
7,718

 
7,600

Net income (loss)
$
3,230

 
$
3,757

 
$
(5,011
)
 
$
18,198

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.24

 
$
(0.33
)
 
$
1.15

Diluted
$
0.21

 
$
0.24

 
$
(0.33
)
 
$
1.14

Weighted Average Shares:
 
 
 
 
 
 
 
Basic
14,997

 
15,659

 
15,269

 
15,866

Diluted
15,072

 
15,659

 
15,269

 
15,901



5/9

Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
 
December 31,
2013
 
December 31,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
66,223

 
$
61,169

Accounts receivable, net
13,986

 
13,626

Income taxes receivable
2,656

 
6,682

Deposits
396

 
389

Prepaid expenses and other current assets
3,202

 
2,260

Deferred tax assets
1,143

 
2,194

Restricted cash
200

 
—

Funds held for reverse/forward stock split
13,668

 
—

Total current assets
101,474

 
86,320

Deposits, less current portion
1,168

 
1,107

Deferred tax assets, less current portion
2,032

 
1,710

Restricted cash
1,479

 
3,396

Property and equipment, net
8,245

 
4,314

Intangible assets, net
404

 
986

Total assets
$
114,802

 
$
97,833

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
31,766

 
$
28,695

Accrued expenses
10,543

 
8,993

Deferred revenue
1,578

 
2,698

Deferred rent
281

 
280

Reserve for unexchanged promotional shares
12,726

 
3,000

Payable to shareholders for reverse/forward stock split
13,668

 
—

Total current liabilities
70,562

 
43,666

Long-term tax liabilities
10,436

 
10,030

Deferred rent, less current portion
2,469

 
798

Total liabilities
83,467

 
54,494

Common stock
163

 
163

Treasury stock
(15,662
)
 
(7,898
)
Additional paid-in capital
10,247

 
8,863

Accumulated other comprehensive loss
(530
)
 
(737
)
Retained earnings
37,117

 
42,948

Total stockholders’ equity
31,335

 
43,339

Total liabilities and stockholders’ equity
$
114,802

 
$
97,833



6/9

Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) 
 
Three months ended
 
Twelve months ended
 
December 31,
 
December 31,
 
2013
 
2012
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income (loss)
$
3,230

 
$
3,757

 
$
(5,011
)
 
$
18,198

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
795

 
683

 
2,980

 
2,539

Deferred income taxes
65

 
(2,174
)
 
706

 
(2,178
)
Stock-based compensation
395

 
307

 
1,384

 
1,207

Provision for losses on accounts receivable
15

 
46

 
(29
)
 
162

Net foreign currency effects
(5
)
 
1

 
33

 
(4
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
932

 
1,784

 
(173
)
 
(285
)
Deposits
(67
)
 
(24
)
 
(50
)
 
(406
)
Income tax receivable
1,873

 
3,351

 
4,042

 
5,171

Prepaid expenses and other current assets
290

 
328

 
(685
)
 
87

Accounts payable
3,494

 
5,211

 
2,453

 
6,403

Accrued expenses
475

 
(630
)
 
1,515

 
2,568

Deferred revenue
(165
)
 
190

 
(1,121
)
 
513

Deferred rent
383

 
25

 
682

 
45

Income tax payable
(1,298
)
 
(1
)
 
(6
)
 
(285
)
Reserve for unexchanged promotional shares
(12,274
)
 
—

 
9,726

 
3,000

Other non-current liabilities
47

 
156

 
406

 
(35
)
Net cash provided by (used in) operating activities
(1,815
)
 
13,010

 
16,852

 
36,700

Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of intangible asset
—

 
(677
)
 
—

 
(677
)
Release (purchases) of restricted cash
—

 
(272
)
 
1,786

 
(272
)
Purchases of property and equipment
(1,866
)
 
(698
)
 
(5,461
)
 
(2,744
)
Net cash used in investing activities
(1,866
)
 
(1,647
)
 
(3,675
)
 
(3,693
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repurchase of common stock
(7,764
)
 
(7,898
)
 
(7,764
)
 
(11,509
)
Reverse/forward stock split, including transaction costs
(688
)
 
—

 
(688
)
 
—

Net cash used in financing activities
(8,452
)
 
(7,898
)
 
(8,452
)
 
(11,509
)
Effect of exchange rate on cash and cash equivalents
456

 
70

 
329

 
927

Net increase (decrease) in cash and cash equivalents
(11,677
)
 
3,535

 
5,054

 
22,425

Cash and cash equivalents at beginning of period
77,900

 
57,634

 
61,169

 
38,744

Cash and cash equivalents at end of period
$
66,223

 
$
61,169

 
$
66,223

 
$
61,169

Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid (received) for income taxes, net
$
562

 
$
(631
)
 
$
2,479

 
$
4,937



7/9

Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
 
Three months ended December 31, 2013
North
America
 
Europe
 
Elimination and Other
 
Consolidated
Revenue from unaffiliated customers
$
25,586

 
$
11,889

 
$
—

 
$
37,475

Intersegment revenue
194

 
11

 
(205
)
 
—

Total net revenues
25,780

 
11,900

 
(205
)
 
37,475

Operating income
$
2,680

 
$
1,793

 
$
—

 
$
4,473

Three months ended December 31, 2012
North
America
 
Europe
 
Elimination and Other
 
Consolidated
Revenue from unaffiliated customers
$
26,373

 
$
10,655

 
$
—

 
$
37,028

Intersegment revenue
157

 
102

 
(259
)
 
—

Total net revenues
26,530

 
10,757

 
(259
)
 
37,028

Operating income
$
3,387

 
$
970

 
$
—

 
$
4,357

Twelve months ended December 31, 2013
North
America
 
Europe
 
Elimination and Other (a)
 
Consolidated
Revenue from unaffiliated customers
$
111,955

 
$
46,279

 
$
—

 
$
158,234

Intersegment revenue
814

 
452

 
(1,266
)
 
—

Total net revenues
112,769

 
46,731

 
(1,266
)
 
158,234

Operating income
$
16,568

 
$
7,710

 
$
(22,000
)
 
$
2,278

Twelve months ended December 31, 2012
North
America
 
Europe
 
Elimination and Other (a)
 
Consolidated
Revenue from unaffiliated customers
$
108,787

 
$
42,381

 
$
—

 
$
151,168

Intersegment revenue
728

 
143

 
(871
)
 
—

Total net revenues
109,515

 
42,524

 
(871
)
 
151,168

Operating income
$
21,481

 
$
7,008

 
$
(3,000
)
 
$
25,489


 
(a)
Includes a charge of $22.0 million and $3.0 million for the twelve months ended December 31, 2013 and 2012, respectively, related to settlement agreements in connection with a dispute over unclaimed property audits.


8/9

Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
Twelve months ended
 
 
December 31,
 
 
2013
 
2012
GAAP operating expense
 
$
138,554

 
$
109,934

Unexchanged promotional shares (a)
 
22,000

 
3,000

Non-GAAP operating expense
 
$
116,554

 
$
106,934

 
 
 
 
 
GAAP operating income
 
$
2,278

 
$
25,489

Unexchanged promotional shares (a)
 
22,000

 
3,000

Non-GAAP operating income
 
$
24,278

 
$
28,489

 
 
 
 
 
GAAP operating margin
 
1.4
 %
 
16.9
 %
Unexchanged promotional shares (a)
 
13.9
 %
 
2.0
 %
Non-GAAP operating margin
 
15.3
 %
 
18.9
 %
 
 
 
 
 
GAAP effective tax rate
 
285.1
 %
 
29.5
 %
Unexchanged promotional shares (a)
 
(253.9
)%
 
(3.1)
 %
Non-GAAP effective tax rate
 
31.2
 %
 
26.4
 %
 
 
 
 
 
GAAP net income (loss)
 
$
(5,011
)
 
$
18,198

Unexchanged promotional shares (a)
 
22,000

 
3,000

Non-GAAP net income
 
$
16,989

 
$
21,198

 
 
 
 
 
Earnings (loss) per share
 
$
(0.33
)
 
$
1.14

Unexchanged promotional shares (a)
 
1.44

 
0.19

Non-GAAP earnings per share (b)
 
$
1.11

 
$
1.33

 
 
 
 
 
 
 
 
 
 
(a)
Includes a charge of $22.0 million and a charge of $3.0 million for the twelve months ended December 31, 2013 and 2012, respectively, related to settlement agreements in connection with a dispute over unclaimed property audits.

(b)
Shares used to calculate non-GAAP earnings per share for the twelve months ended December 31, 2013 were 15,355,160, which were different than the shares used in GAAP loss per share calculation due to the anti-dilutive effect on the GAAP loss per share.


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