TRAVELZOO - FORM 8-K - EX-99.1 - EXHIBIT - July 18, 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 Second Quarter 2014 Results

NEW YORK, July 17, 2014 - Travelzoo Inc. (NASDAQ: TZOO):

•
Revenue of $36.9 million, down 11% year-over-year
•
Operating profit of $10.1 million, up 30% year-over-year
•
Non-GAAP earnings per share of $0.30, compared to $0.34 in the prior-year period
•
Cash used in operations of $509,000

Travelzoo Inc., a global Internet media company, today announced financial results for the second quarter ended June 30, 2014, with revenue of $36.9 million, a decrease of 11% year-over-year. Net income was $7.9 million, with earnings per share of $0.54. Non-GAAP net income was $4.4 million, with non-GAAP earnings per share of $0.30. Non-GAAP net income and non-GAAP earnings per share exclude a $3.5 million release of reserve for Travelzoo Inc.'s anticipated settlement agreements in connection with a dispute over unclaimed property audits.
 
"In North America, our revenues declined due to lower Local and Search revenues, as previously announced. In Europe, our revenues and operating income increased. Europe contributed 43% of our operating income this quarter," said Chris Loughlin, chief executive officer. "We continue to invest in mobile products and in our new hotel booking platform."

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North America
North America business segment revenue decreased 17% year-over-year to $25.2 million. Non-GAAP operating profit for the second quarter was $3.8 million, or 15% of revenue, down from $5.9 million, or 20% of revenue, in the prior-year period.

Europe
Europe business segment revenue increased 6% year-over-year to $11.7 million. In local currency terms, revenue decreased 4% year-over-year. Non-GAAP operating profit for the second quarter was $2.9 million, or 24% of revenue, up from $1.9 million, or 17% of revenue in the prior-year period.

Subscribers
Travelzoo had a total unduplicated number of subscribers in North America and Europe of 23.7 million as of June 30, 2014, up 3% from June 30, 2013. In North America, total unduplicated number of subscribers was 16.7 million as of June 30, 2014, up 2% from June 30, 2013. In Europe, total unduplicated number of subscribers was 7.0 million as of June 30, 2014, up 6% from June 30, 2013.

Update on Hotel Booking Platform
Travelzoo began testing its new hotel booking platform in North America in April on desktop and in June on mobile. In the second quarter, the booking engine was presented to a limited number of Travelzoo subscribers. Booking revenue is recognized upon stay, which is typically 40 to 50 days after the booking occurs.

Income Taxes
Income tax expense was $2.3 million, compared to $2.7 million in the prior-year period. The effective income tax rate, as calculated on the basis of non-GAAP income before taxes, was 34%, consistent with prior-year period.

Asset Management
During the second quarter of 2014, Travelzoo used $509,000 of cash from operating activities primarily due to new terms with Local Deals merchants which resulted in faster payments. Accounts receivable increased by $1.1 million over the prior-year period to $16.5 million. Accounts payable decreased by $4.8 million over the prior-year period to $24.1 million. Capital expenditures were $405,000, down from $1.2 million in the prior-year period. As of June 30, 2014, cash and cash equivalents were $60.5 million.

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Non-GAAP Information
To give an enhanced view of Travelzoo's operating performance, management has calculated non-GAAP operating expense, non-GAAP North America operating profit, non-GAAP operating profit, non-GAAP operating margin, non-GAAP effective tax rate, non-GAAP net income and non-GAAP earnings per share by excluding the release of reserve 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 information. As the only difference between GAAP and non-GAAP information is the release of reserve related to our unexchanged promotional shares, today’s reporting should not be viewed as Travelzoo’s intention to report non-GAAP information in future periods. Refer to the “Reconciliation of GAAP to Non-GAAP Information” section of this press release for important information.

Conference Call
Travelzoo will host a conference call to discuss second 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;
•
access the webcast.

About Travelzoo
Travelzoo Inc. is a global Internet media company. With more than 27 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.



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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. All other names are trademarks and/or registered trademarks of their respective owners.


###


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Travelzoo Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues
$
36,883

 
$
41,327

 
$
77,078

 
$
83,504

Cost of revenues
4,374

 
4,425

 
9,151

 
8,411

Gross profit
32,509

 
36,902

 
67,927

 
75,093

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
15,305

 
19,457

 
33,148

 
39,115

General and administrative
10,570

 
9,651

 
21,148

 
20,149

Unexchanged promotional shares
(3,500
)
 
—

 
(3,500
)
 
—

Total operating expenses
22,375

 
29,108

 
50,796

 
59,264

Income from operations
10,134

 
7,794

 
17,131

 
15,829

Other income
56

 
112

 
177

 
144

Income before income taxes
10,190

 
7,906

 
17,308

 
15,973

Income taxes
2,266

 
2,706

 
4,747

 
5,178

Net income
$
7,924

 
$
5,200

 
$
12,561

 
$
10,795

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.54

 
$
0.34

 
$
0.85

 
$
0.70

Diluted
$
0.54

 
$
0.34

 
$
0.84

 
$
0.70

Weighted average shares:
 
 
 
 
 
 
 
Basic
14,734

 
15,362

 
14,806

 
15,362

Diluted
14,794

 
15,457

 
14,881

 
15,427



5/9



Travelzoo Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
 
June 30,
2014
 
December 31,
2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
60,502

 
$
66,223

Accounts receivable, net
16,529

 
13,986

Income taxes receivable
2,015

 
2,656

Deposits
287

 
396

Prepaid expenses and other current assets
2,066

 
3,202

Deferred tax assets
1,216

 
1,143

Restricted cash
—

 
200

Funds held for reverse/forward stock split
199

 
13,668

Total current assets
82,814

 
101,474

Deposits
1,183

 
1,168

Deferred tax assets
2,476

 
2,032

Restricted cash
1,478

 
1,479

Property and equipment, net
9,668

 
8,245

Intangible assets, net
298

 
404

Total assets
$
97,917

 
$
114,802

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
24,108

 
$
31,766

Accrued expenses and other
9,100

 
10,824

Deferred revenue
1,801

 
1,578

Income tax payable
1,699

 
—

Reserve for unexchanged promotional shares
8,000

 
12,726

Payable to shareholders for reverse/forward stock split
199

 
13,668

Total current liabilities
44,907

 
70,562

Long-term tax liabilities
10,660

 
10,436

Long term deferred rent and other
3,419

 
2,469

Total liabilities
58,986

 
83,467

Common stock
163

 
163

Treasury stock
(21,517
)
 
(15,662
)
Additional paid-in capital
11,037

 
10,247

Accumulated other comprehensive loss
(83
)
 
(530
)
Retained earnings
49,331

 
37,117

Total stockholders’ equity
38,931

 
31,335

Total liabilities and stockholders’ equity
$
97,917

 
$
114,802



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Travelzoo Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) 
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
7,924

 
$
5,200

 
$
12,561

 
$
10,795

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
640

 
760

 
1,342

 
1,476

Impairment of software
249

 
—

 
249

 
—

Deferred income taxes
(584
)
 
207

 
(508
)
 
400

Stock-based compensation
395

 
307

 
790

 
613

Provision for losses on accounts receivable
41

 
(45
)
 
(11
)
 
50

Net foreign currency effects
(6
)
 
19

 
(36
)
 
112

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(1,123
)
 
(91
)
 
(2,411
)
 
(2,127
)
Deposits
27

 
175

 
160

 
20

Income tax receivable
(717
)
 
2,029

 
549

 
3,593

Prepaid expenses and other current assets
60

 
(1,382
)
 
564

 
(1,032
)
Accounts payable
(4,350
)
 
1,965

 
(7,389
)
 
845

Accrued expenses and other
(740
)
 
263

 
(1,920
)
 
485

Income tax payable
1,061

 
467

 
1,783

 
1,038

Reserve for unexchanged promotional shares
(3,500
)
 
—

 
(4,726
)
 
—

Other non-current liabilities
114

 
107

 
225

 
210

Net cash provided by (used in) operating activities
(509
)
 
9,981

 
1,222

 
16,478

Cash flows from investing activities:
 
 
 
 
 
 
 
Release (purchase) of restricted cash
—

 
(263
)
 
200

 
(263
)
Purchases of property and equipment
(405
)
 
(1,209
)
 
(1,424
)
 
(2,109
)
Net cash used in investing activities
(405
)
 
(1,472
)
 
(1,224
)
 
(2,372
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repurchase of common stock
(287
)
 
—

 
(5,855
)
 
—

Reverse/forward stock split, including transaction costs
—

 
—

 
(479
)
 
—

Net cash used in financing activities
(287
)
 
—

 
(6,334
)
 
—

Effect of exchange rate on cash and cash equivalents
668

 
(235
)
 
615

 
(1,894
)
Net increase (decrease) in cash and cash equivalents
(533
)
 
8,274

 
(5,721
)
 
12,212

Cash and cash equivalents at beginning of period
61,035

 
65,107

 
66,223

 
61,169

Cash and cash equivalents at end of period
$
60,502

 
$
73,381

 
$
60,502

 
$
73,381

Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid for income taxes, net
$
2,508

 
$
10

 
$
2,843

 
$
20



7/9



Travelzoo Inc.
Segment Information
(Unaudited)
(In thousands)
 
Three months ended June 30, 2014
North
America
 
Europe
 
Elimination and Other (a)
 
Consolidated
Revenue from unaffiliated customers
$
25,175

 
$
11,708

 
$
—

 
$
36,883

Intersegment revenue
302

 
129

 
(431
)
 
—

Total net revenues
25,477

 
11,837

 
(431
)
 
36,883

Operating income
$
3,771

 
$
2,863

 
$
3,500

 
$
10,134

Three months ended June 30, 2013
North
America
 
Europe
 
Elimination and Other
 
Consolidated
Revenue from unaffiliated customers
$
30,249

 
$
11,078

 
$
—

 
$
41,327

Intersegment revenue
331

 
222

 
(553
)
 
—

Total net revenues
30,580

 
11,300

 
(553
)
 
41,327

Operating income
$
5,899

 
$
1,895

 
$
—

 
$
7,794

 
 
 
 
 
 
 
 
Six months ended June 30, 2014
North
America
 
Europe
 
Elimination and Other (a)
 
Consolidated
Revenue from unaffiliated customers
$
51,528

 
$
25,550

 
$
—

 
$
77,078

Intersegment revenue
716

 
141

 
(857
)
 
—

Total net revenues
52,244

 
25,691

 
(857
)
 
77,078

Operating income
$
8,375

 
$
5,256

 
$
3,500

 
$
17,131

Six months ended June 30, 2013
North
America
 
Europe
 
Elimination and Other
 
Consolidated
Revenue from unaffiliated customers
$
60,160

 
$
23,344

 
$
—

 
$
83,504

Intersegment revenue
575

 
330

 
(905
)
 
—

Total net revenues
60,735

 
23,674

 
(905
)
 
83,504

Operating income
$
11,382

 
$
4,447

 
$
—

 
$
15,829


(a)
Includes a $3.5 million release of reserve for the three and six months ended June 30, 2014 related to anticipated settlement agreements in connection with a dispute over unclaimed property audits.

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Travelzoo Inc.
Reconciliation of GAAP to Non-GAAP Information
(Unaudited)
(In thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
GAAP operating expense
$
22,375

 
$
29,108

 
$
50,796

 
$
59,264

Unexchanged promotional shares (a)
(3,500
)
 
—

 
(3,500
)
 
—

Non-GAAP operating expense
$
25,875

 
$
29,108

 
$
54,296

 
$
59,264

 
 
 
 
 
 
 
 
GAAP operating income
$
10,134

 
$
7,794

 
$
17,131

 
$
15,829

Unexchanged promotional shares (a)
(3,500
)
 
—

 
(3,500
)
 
—

Non-GAAP operating income
$
6,634

 
$
7,794

 
$
13,631

 
$
15,829

 
 
 
 
 
 
 
 
GAAP operating margin
27.5
 %
 
18.9
%
 
22.2
 %
 
19.0
%
Unexchanged promotional shares (a)
(9.5
)%
 
—
%
 
(4.5
)%
 
—
%
Non-GAAP operating margin
18.0
 %
 
18.9
%
 
17.7
 %
 
19.0
%
 
 
 
 
 
 
 
 
GAAP effective tax rate
22.2
 %
 
34.2
%
 
27.4
 %
 
32.4
%
Unexchanged promotional shares (a)
11.6
 %
 
—
%
 
7.0
 %
 
—
%
Non-GAAP effective tax rate
33.8
 %
 
34.2
%
 
34.4
 %
 
32.4
%
 
 
 
 
 
 
 
 
GAAP net income
$
7,924

 
$
5,200

 
$
12,561

 
$
10,795

Unexchanged promotional shares (a)
(3,500
)
 
—

 
(3,500
)
 
—

Non-GAAP net income
$
4,424

 
$
5,200

 
$
9,061

 
$
10,795

 
 
 
 
 
 
 
 
Earnings per share
$
0.54

 
$
0.34

 
$
0.84

 
$
0.70

Unexchanged promotional shares (a)
(0.24
)
 
—

 
(0.24
)
 
—

Non-GAAP earnings per share
$
0.30

 
$
0.34

 
$
0.60

 
$
0.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Includes a $3.5 million release of reserve for the three and six months ended June 30, 2014 related to anticipated settlement agreements in connection with a dispute over unclaimed property audits.

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