NASDAQ: TZOO
2015 Annual Report
2016 Proxy Statement
TRAVELZOO INC.
Table of Contents
Information About the Annual Meeting
Election of Directors (Proposal 1)
Corporate Governance
Information About Executive Officers
Approval of Option Grants (Proposal 2)
Advisory Vote On the Compensation of Named Executive Officers (Proposal 3)
Compensation Discussion and Analysis
Security Ownership of Certain Beneficiary Owners and Management
Section 16(a) Beneficial Ownership Reporting Compliance
Principal Accountant Fees and Services
Audit Committee Report
Documents Incorporated By Reference
Additional Information
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Travelzoo Inc.
590 Madison Avenue, 37th Floor
New York, NY 10022
March 10, 2016
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of Travelzoo Inc. on May 6, 2016. We will hold
the meeting at 590 Madison Avenue, 37th Floor, New York, NY 10022, U.S.A., at 10:00 a.m. local time.
In connection with the meeting, we enclose a notice of the meeting, a proxy statement and a proxy card. Detailed
information relating to Travelzoo’s activities and operating performance is contained in our 2015 Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission on March 14, 2016, which is also enclosed. We encourage you to read
the Form 10-K.
Stockholders of record as of March 10, 2016 may vote at the Annual Meeting. This proxy statement or notice thereof is
first being mailed or furnished to stockholders on or about March 24, 2016.
Your vote is important. Whether or not you plan to attend the Annual Meeting of Stockholders, please vote your shares
via mail with the enclosed proxy card. Please note that you can attend the meeting and vote in person, even if you have
previously voted by proxy. If you plan to attend the meeting in person, please provide advance notice to Travelzoo by checking
the box on your proxy card. In addition, you may provide notice to Travelzoo that you plan to attend in person by delivering
written notice to Travelzoo’s Corporate Secretary at 800 W. El Camino Real, Suite 275, Mountain View, CA 94040.
If you hold your shares in street name through a bank, broker, or other nominee, please bring identification and proof of
ownership, such as an account statement or letter from your bank or broker, for admittance to the meeting. An admission list
containing the names of all of those planning to attend will be placed at the registration desk at the entrance to the meeting. You
must check in to be admitted.
Travelzoo will make available an alphabetical list of stockholders entitled to vote at the meeting for examination by any
stockholder during ordinary business hours at Travelzoo’s principal executive offices, located at 590 Madison Avenue, 37th
Floor, New York, NY 10022, for ten days prior to the meeting. A stockholder may examine the list for any legally valid purpose
related to the meeting.
On behalf of the entire Board of Directors, we look forward to seeing you at the meeting.
Sincerely,
HOLGER BARTEL
Chairman of the Board
1
TRAVELZOO INC.
590 Madison Avenue
37th Floor
New York, NY 10022
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 6, 2016
To the Stockholders of Travelzoo Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Travelzoo Inc., a Delaware corporation, will
be held on Friday, May 6, 2016, at 10:00 a.m., local time, at 590 Madison Avenue, 37th Floor, New York, NY 10022, U.S.A.,
for the following purposes:
To elect seven members of the Company's Board of Directors (the "Board"), each to serve until the 2017 Annual
Meeting of Stockholders and until their successors are elected and qualified or until their earlier resignation or
removal ("Proposal 1");
To approve option grants for three executive officers of the Company ("Proposal 2");
To approve, on an advisory basis, the compensation of the named executive officers of the Company ("Proposal 3");
and
To transact such other business as may properly come before the Annual Meeting or any adjournment or
postponement of the Annual Meeting.
Only stockholders of record at 5:00 p.m. Eastern Time on March 10, 2016 may vote at the Annual Meeting. Your vote is
important. Whether you plan to attend the Annual Meeting or not, please cast your vote by completing, dating and signing
the enclosed proxy card and returning it via mail to the address indicated. If you attend the meeting and prefer to vote in
person, you may do so even if you have previously voted by proxy.
By Order of the Board of Directors,
TRAVELZOO INC.
GLEN CEREMONY
Corporate Secretary
2
PROXY STATEMENT
FOR TRAVELZOO INC.
2016 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING
Why am I receiving these proxy materials?
Travelzoo’s Board of Directors is soliciting proxies to be voted at the 2016 Annual Meeting of Stockholders. This
proxy statement includes information about the issues to be voted upon at the meeting.
Only stockholders of record of our common stock, par value $0.01 per share (the "Common Stock"), as of 5:00 p.m.
Eastern Time on March 10, 2016 (the "record date") will be entitled to notice of, and to vote at, the Annual Meeting. As of the
record date, there were 14,387,412 shares of our Common Stock issued and outstanding.
Where and when is the Annual Meeting?
The Annual Meeting of Stockholders will take place on May 6, 2016 at 590 Madison Avenue, 37th Floor, New York,
NY 10022, U.S.A. The meeting will begin at 10:00 a.m. local time.
What am I voting on?
Stockholders will vote on three items:
A proposal to elect seven members of the Company's Board, each to serve until the 2017 Annual Meeting of
Stockholders and until their successors are elected and qualified or until their earlier resignation or removal
("Proposal 1");
To approve option grants for three executive officers of the Company ("Proposal 2");
A proposal to approve, on an advisory basis, the compensation of the named executive officers of the Company
("Proposal 3"); and
To transact such other business as may properly come before the Annual Meeting or any adjournment or
postponement of the Annual Meeting.
How does the Board recommend that you vote on the proposals?
The Board recommends that you vote your shares "FOR" Proposal 1, Proposal 2 and Proposal 3.
How many votes do I have?
Shares held directly in your name as the “stockholder of record” and
Shares held for you as the beneficial owner through a broker, bank, or other nominee in “street name.”
If I am a stockholder of record, how can I vote my shares?
Stockholders can vote by proxy or in person, however, granting a proxy does not in any way affect your right to attend
the Annual Meeting and vote in person.
3
How do I vote by proxy?
If you are a stockholder of record, you may vote your proxy by mail. If you receive a paper copy of the proxy
statement, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided. If you
receive the proxy statement via e-mail, please print the attached proxy card, date and sign it, and return it via mail to Broadridge
Financial Solutions, Inc., 51 Mercedes Way, Edgewood, New York, NY 11717, U.S.A.
If you vote by proxy, the persons named on the card (your "proxies") will vote your shares in the manner you indicate.
You may specify whether your shares should be voted for all, some or none of the nominees for director or any other proposals
properly brought before the Annual Meeting. If you sign your proxy card and do not indicate specific choices, your shares will
be voted "FOR" the election of all nominees for director and "FOR" Proposal 2 and Proposal 3. If any other matter is properly
brought before the meeting, your proxies will vote in accordance with their discretion. At the time of submitting this proxy
statement for printing, we knew of no matter that will be acted on at the Annual Meeting other than those discussed in this
proxy statement.
If you wish to give a proxy to someone other than the persons named on the enclosed proxy card, you may strike out
the names appearing on the card and write in the name of any other person, sign the proxy, and deliver it to the person whose
name has been substituted.
May I revoke my proxy?
If you give a proxy, you may revoke it in any one of three ways:
Submit a valid, later-dated proxy before the Annual Meeting,
Notify our Corporate Secretary in writing at Travelzoo Inc., Attention: Corporate Secretary, 800 W. El Camino
Real, Suite 275, Mountain View, CA 94040 before the Annual Meeting that you have revoked your proxy, or
Vote in person at the Annual Meeting.
How do I vote in person?
If you are a stockholder of record, you may cast your vote in person at the Annual Meeting.
If I hold shares in street name, how can I vote my shares?
You can submit voting instructions to your broker or nominee. In most instances, you will be able to do this over the
Internet or by mail. Please refer to the voting instruction card included in the materials provided by your broker or nominee.
What vote is required to approve each proposal?
Each share of our Common Stock is entitled to one vote with respect to each matter on which it is entitled to vote.
Pursuant to our bylaws, our directors are elected by a plurality of the votes cast, which means that the nominees who receive the
greatest number of votes will be elected. The affirmative vote of a majority of the shares of the Company's Common Stock
present in person or represented by proxy and entitled to vote on the proposal will be considered as the approval of Proposal 2
and, by an advisory vote, of Proposal 3.
In order to have a valid stockholder vote, a stockholder quorum must exist at the Annual Meeting. A quorum will exist
when stockholders holding a majority of the outstanding shares of Common Stock are present at the meeting, either in person or
by proxy.
Azzurro Capital Inc., whose beneficial owner is Mr. Ralph Bartel, a member of our Board, holds an aggregate of
7,430,538 shares of our Common Stock, representing approximately of 51.7% the outstanding shares, as of March 10, 2016.
All properly executed proxies delivered pursuant to this solicitation and not revoked will be voted at the Annual
Meeting as specified in such proxies. As noted above, if no voting instructions are indicated, proxies will be voted as
recommended by our Board on all matters, and in the discretion of the proxy holder on any other matters that properly come
before the Annual Meeting.
4
What is a broker non-vote and how are broker non-votes and abstentions counted?
A broker "non-vote" occurs when a nominee holding shares of Common Stock for the beneficial owner does not vote
on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner. Brokers that have not received voting instructions from their clients cannot
vote on their clients' behalf on "non-routine" proposals. The vote on Proposals 1, 2 and 3 are considered "non-routine". Broker
non-votes will not have any effect with respect to Proposals 1, 2 and 3, as shares that constitute broker non-votes are not
considered entitled to vote but will be counted for the purposes of obtaining a quorum for the Annual Meeting.
Abstentions are counted as "shares present" at the Annual Meeting for purposes of determining the presence of a
quorum and with respect to any matters being voted upon at the Annual Meeting. Abstentions will have no effect on the
outcome of the election of directors, but with respect to any other proposal an abstention will have the same effect as a vote
against such proposal.
Where can I find the voting results of the meeting?
We intend to announce preliminary voting results at the meeting. We will publish the final results in a report on Form
8-K, which we intend to file within four business days following the Annual Meeting. You can obtain a copy of the Form 8-K
by logging on to Travelzoo's investor relations website at www.travelzoo.com/ir, by calling the U.S. Securities and Exchange
Commission ("SEC") at (800) SEC-0330 for the location of the nearest public reference room, or through the EDGAR system
at www.sec.gov. Information on our website does not constitute part of this proxy statement.
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ELECTION OF DIRECTORS (PROPOSAL 1)
Under Travelzoo's bylaws, the number of directors of Travelzoo is fixed, and may be increased or decreased from time
to time, by resolution of the Board of Directors. Each director holds office for a term of one year, until the annual meeting of
stockholders next succeeding the director's election and until a successor is elected and qualified or until the earlier resignation
or removal of the director. The following individuals have been nominated for election to our Board of Directors, each to serve
until the 2017 Annual Meeting of Stockholders and until their successors are elected and qualified or until their earlier
resignation or removal.
Following is information about each nominee, including biographical data for at least the last five years. Should one or
more of these nominees become unavailable to accept nomination or election as a director, the individuals named as proxies on
the enclosed proxy card will vote the shares that they represent for the election of such other persons as the Board may
recommend, unless the Board reduces the number of directors. We have no reason to believe that any nominee will be unable or
unwilling to serve if elected as a director.
Nominees for a One-Year Term That Will Expire in 2017:
The ages, principal occupations, directorships held and other information as of March 10, 2016, with respect to our
nominees are described below.
Name
Holger Bartel, Ph.D.
Ralph Bartel, Ph.D.
Michael Karg, Ph.D. (1) (2) (3) (4)
Donovan Neale-May (1) (3) (4)
Mary Reilly (1) (2) (4)
Beatrice Tarka
Caroline Tsay
Age
49
50
44
63
62
44
34
Position
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Disclosure Committee
(4) Member of the Nominating and Corporate Governance Committee
Each of the director nominees listed above, is currently a director of Travelzoo. Mr. Holger Bartel, Mr. Ralph Bartel,
Mr. Karg, Mr. Neale-May and Ms. Reilly were elected directors of Travelzoo at the Company's Annual Meeting of Stockholders
held on May 1, 2015. Ms. Tarka and Ms. Tsay were appointed directors of Travelzoo by the Board of Directors on August 22,
2015. Our Board of Directors has determined that each of Mr. Karg, Mr. Neale-May, Ms. Reilly, Ms. Tarka and Ms. Tsay meet
the independence requirements of the listing standards of the NASDAQ Stock Market (the "NASDAQ"). The Board of
Directors determined that Mr. Ralph Bartel is not independent under the rules of NASDAQ because he is a beneficial owner of
Azzurro Capital Inc., which holds approximately 51.7% of our outstanding Common Stock as of March 10, 2016, and Mr.
Holger Bartel is not independent under the rules of NASDAQ because he is Ralph Bartel's brother.
Holger Bartel, Ph.D., has been Travelzoo's Global Chief Executive Officer since January 2016. He has been the
Chairman of the Board of Directors since July 2010. From September 2015 to December 2015, he was Travelzoo's Executive
Chairman. From October 2011 to October 2013, he was Head of Strategy. From October 2008 to June 2010, he was Travelzoo's
Chief Executive Officer. From September 1999 to November 2007, he was Executive Vice President. From 1995 to 1998, he
was Engagement Manager at McKinsey & Company, a global management consulting firm. From 1992 to 1994, he was a
research fellow at Harvard Business School. Holger Bartel holds a Ph.D. in Economics and an MBA in finance and accounting
from the University of St. Gallen, Switzerland. He is the brother of Ralph Bartel.
Areas of Holger Bartel's relevant experience include deep knowledge of Travelzoo's operations, Internet, strategy,
management of growth companies, travel and international management.
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Ralph Bartel, Ph.D., Ph.D., founded Travelzoo in May 1998 and has been a member of the Board of Directors since
then. He has been Travelzoo's Chief Talent Officer since September 2014. From May 1998 to September 2008, he was the
Chairman of the Board of Directors and the Chief Executive Officer. From October 2008 to June 2010, he was the Chairman of
the Board of Directors. Ralph Bartel is a professionally trained journalist who holds a Ph.D. in Communications from the
University of Mainz, Germany, a master's degree in journalism from the University of Eichstaett, Germany, and a Ph.D. in
Economics and an MBA in finance and accounting from the University of St. Gallen, Switzerland. He is the brother of Holger
Bartel.
Areas of Ralph Bartel's relevant experience include media, journalism, Internet, finance and start-up experience.
Michael Karg, Ph.D., has been a member of Travelzoo's Board of Directors since September 2013. He has been Group
Chief Executive Officer of Ebiquity and a member of its board of directors since January 2016. Ebiquity, a company listed on
the London Stock Exchange, provides independent marketing analytics services helping brands globally improve their return on
marketing investment. From May 2013 to December 2015, he was Chief Executive Officer of Razorfish International, an
interactive marketing and technology services company. From September 2010 to May 2013, he was Chief Operating Officer
International of Razorfish Digitas. Mr. Karg holds a doctorate in business administration and an MBA in finance and
accounting from the University of St. Gallen, Switzerland.
Areas of Mr. Karg's relevant experience include international management, marketing, digital media, and corporate
strategy and development.
Donovan Neale-May has been a member of Travelzoo's Board of Directors since February 1999. He has been the
President and Managing Partner of GlobalFluency since 1987. GlobalFluency is a global organization of independent marketing
and communications firms with 70 offices in over 40 countries. He is the founder and Executive Director of the Chief
Marketing Officer (CMO) Council, a global affinity network of more than 9,000 senior marketing and branding executives
controlling more than $450 billion in aggregated annual marketing spend. Mr. Neale-May is a journalism graduate of Rhodes
University in South Africa. He is a member of Rhodes University's board of governors.
Areas of Mr. Neale-May's relevant experience include brand strategy, public relations, marketing and international
management.
Mary Reilly has been a member of Travelzoo's Board of Directors since September 2013. From August 2002 to June
2013, she was a Partner of Deloitte LLP, an international accounting and consulting firm. At Deloitte she worked with
organizations in a wide range of industries including recruitment, retail, media, business services, manufacturing, professional
services, and charity. She is the Chair of the Audit and Risk Committee for the Department of Transport Board in the United
Kingdom since June 2013. She is a member of the Board of Directors and the Chair of the Audit and Risk Committee for
Crown Agents, an international development company that partners with governments, aid agencies, non-governmental
organizations and companies in nearly 100 countries to make lasting change to the systems and organizations that are vital for
people’s well-being and prosperity. From 2000 to 2008, she was a member of the Board of Directors of London 2012, a
company established to run London's Olympic bid. From 2003 to 2006, she was a member of the Board of Directors of the
London Development Agency. Ms. Reilly holds a bachelor's degree in history from the University College London. She
completed a postgraduate course at London Business School. She is a Qualified Chartered Accountant in the United Kingdom.
Areas of Ms. Reilly's relevant experience include accounting, finance, international management and non-executive
directorships.
Beatrice Tarka has been a member of Travelzoo's Board of Directors since August 2015. She has been the founder and
Chief Executive Officer of Mobissimo since September 2000. Mobissimo is an online travel search engine which allows users
to compare prices of airline tickets, hotel rooms, and car rentals. From 1996 to 2000, she was Chief Executive Officer of Axall
Media, a game and entertainment software developer and publisher. Ms. Tarka holds a master's degree in business
administration from Boston University and a bachelor's degree in international affairs from the American University in Paris,
France. She speaks English, French, Italian, and Polish.
Areas of Ms.Tarka’s relevant experience include entrepreneurship, strategic partnerships, international business and
innovative online product development.
7
Caroline Tsay has been a member of Travelzoo's Board of Directors since August 2015. She has been Vice President
and General Manager of the HP Software Online Business at Hewlett-Packard Company since March 2013. From April 2007 to
March 2013, she held several product leadership positions across the consumer search, e-commerce, and advertising businesses
at Yahoo!. She is a member of the Board of Directors of Rosetta Stone, a company listed on the New York Stock Exchange.
Rosetta Stone provides technology-based language learning products. Ms. Tsay holds a master's degree in management science
and engineering and a bachelor's degree in computer science from Stanford University. She speaks English and Mandarin.
Areas of Ms. Tsay’s relevant experience include product development, e-commerce and strategy.
Required Vote
Our Certificate of Incorporation, as amended, does not authorize cumulative voting. Delaware law and our bylaws
provide that directors are to be elected by a plurality of the votes of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote on the election of directors. This means that the seven candidates receiving the highest
number of affirmative votes at the Annual Meeting will be elected as directors. Only shares that are voted in favor of a
particular nominee will be counted toward that nominee's achievement of a plurality. Shares present at the Annual Meeting that
are not voted for a particular nominee or shares present by proxy where the stockholder properly withheld authority to vote for
such nominee will not be counted toward that nominee's achievement of a plurality. Thus, abstentions and broker non-votes will
have no effect on the election of directors. Proxies cannot be voted for a greater number of persons than the number of
nominees named.
Board of Directors' Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF THE SEVEN DIRECTOR NOMINEES NAMED ABOVE.
The Board of Directors believes that each director nominee possesses the qualities and experience a member of
Travelzoo's Board should possess. The Board of Directors seeks out, and the Board of Directors is comprised of, individuals
whose background and experience complement those of other Board members.
8
Board Meetings and Committees
CORPORATE GOVERNANCE
The Board of Directors has appointed an Audit Committee, a Compensation Committee, a Disclosure Committee and a
Nominating and Corporate Governance Committee. Below is a table indicating the membership of each of the Audit
Committee, Compensation Committee, and Disclosure Committee and how many times the Board of Directors and each such
committee met in fiscal year 2015. Each of Mr. Holger Bartel, Mr. Ralph Bartel, Mr. Karg, Mr. Neale-May, and Ms. Reilly
attended at least 75 percent of the total number of meetings of the Board of Directors and of the committees on which he or she
serves during the period such persons served.
Name
Mr. Holger Bartel
Mr. Ralph Bartel
Mr. Neale-May
Mr. Michael Karg
Ms. Mary Reilly
Number of 2015
Meetings
Board
Chair
Member
Member
Member
Member
4
Audit
Compensation
Disclosure
Nominating and
Corporate
Governance
Member
Member
Chair
4
Chair
Member
2
Chair
Member
4
Chair
Member
Member
1
The Company does not require that directors attend the Annual Meeting.
Audit Committee
The Audit Committee's primary responsibilities are to oversee and monitor (i) the integrity of Travelzoo's financial
statements, (ii) the qualifications and independence of our independent registered public accounting firm, (iii) the performance
of our independent registered public accounting firm and internal audit staff, and (iv) the compliance by Travelzoo with legal
and regulatory requirements. A complete description of the committee's responsibilities is set forth in its written charter. A copy
of the written charter can be found in Appendix A of our 2008 proxy statement. The Audit Committee is responsible for
appointing the independent registered public accounting firm and is directly responsible for the compensation and oversight of
the work of our independent registered public accounting firm. The Audit Committee is composed solely of independent
directors as defined in the listing standards of the NASDAQ. The Board has determined that Ms. Mary Reilly qualifies as an
audit committee financial expert within the meaning of the regulations of SEC.
Compensation Committee
The Compensation Committee reviews and approves the compensation and benefits for the Company's executive
officers and directors, and makes recommendations to the Board of Directors regarding such matters. The Compensation
Committee also approves the Company's non-equity incentive plans. The Compensation Committee further reviews and
discusses with management the Compensation Discussion and Analysis section of this proxy statement. The Report of the
Compensation Committee is included herein. The Company is not required to have a Compensation Committee charter since it
is a “Controlled Company” under NASDAQ Rule 5615(c), on account of the stock ownership by Azzurro Capital Inc.
Disclosure Committee
The Disclosure Committee's primary responsibilities are (i) to design, establish and evaluate controls and other
procedures that are designed to ensure the accuracy and timely disclosure of information to the SEC and investment community
and (ii) to review and supervise preparation of SEC filings, press releases and other broadly disseminated correspondence.
9
Nominating and Corporate Governance Committee
The Nominating Committee assists the Board in identifying qualified individuals to become directors, makes
recommendations to the Board concerning the size, structure and composition of the Board and its committees, monitors the
process to assess the Board’s effectiveness and is primarily responsible for oversight of corporate governance. In evaluating
potential nominees to the Board, the Nominating Committee considers, among other things, independence, character, ability to
exercise sound judgment, age, demonstrated leadership, skills, including financial literacy, and experience in the context of the
needs of the Board. The Nominating Committee considers candidates proposed by shareholders and evaluates them using the
same criteria as for other candidates. The Nominating Committee recommended to the full Board each of the current nominees
for election to the Board.
The Board's Role in Risk Oversight
The full Board oversees enterprise risk as part of its role in reviewing and overseeing the implementation of the
Company's strategic plans and objectives. The risk oversight function is administered both in full Board discussions and in
individual committees that are tasked by the Board with oversight of specific risks. On a regular basis, the Board and its
committees receive information and reports from management on the status of the Company and the risks associated with the
Company's strategy and business plans. In addition, the Audit Committee reviews the Company's risk assessment and risk
management policies and procedures at least annually, including steps taken to monitor and control such exposures. The Board
believes the continuity of Board membership and the independent directors constituting a majority of the Board encourage open
discussion and assessment of the Company's ability to manage its risks.
Code of Ethics
We have adopted a code of ethics that applies to our global chief executive officer and our chief financial officer, who
also serves as our principal accounting officer. This code of ethics is posted on our website located at corporate.travelzoo.com/
governance. A copy of the code of ethics is also available in print to stockholders and interested parties without charge upon
written request delivered to our Corporate Secretary at Travelzoo Inc., 800 W. El Camino Real, Suite 275, Mountain View, CA
94040.
Communications with Directors
The board has established a process to receive communications from stockholders. Stockholders and other interested
parties may contact any member (or all members) of the board, or the non-management directors as a group, any board
committee or any chair of any such committee by mail. To communicate with the Board of Directors, any individual directors
or any group or committee of directors, correspondence should be addressed to the Board of Directors or any such individual
directors or group or committee of directors by either name or title. All such correspondence should be sent "c/o Corporate
Secretary" at Travelzoo Inc., 800 W. El Camino Real, Suite 275, Mountain View, CA 94040.
All communications received as set forth in the preceding paragraph will be opened by the Corporate Secretary for the
sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of
advertising, promotions of a product or service, patently offensive material or matters deemed inappropriate for the Board of
Directors will be forwarded promptly to the addressee. In the case of communications to the board or any group or committee
of directors, the Corporate Secretary will make sufficient copies of the contents to send to each director who is a member of the
group or committee to which the correspondence is addressed.
10
Director Compensation
Directors of the Company or its subsidiaries are entitled to receive certain retainers and fees. In 2015, there were no
adjustments to the director compensation policy. The retainers and meeting fees are as follows:
Description
Annual Chairman of the Board retainer
Annual Board member retainer
Annual Audit Committee Chair retainer
Fee for attendance of a Board meeting
Fee for attendance of an Audit Committee meeting
Fee for attendance of a Disclosure Committee meeting
Fee for attendance of a Compensation Committee meeting
Fees Earned ($)
175,000
50,000
30,000
1,680
2,800
1,680
2,800
Members of the Board of Directors may receive fees for additional meetings and committee work.
We reimburse directors for out-of-pocket expenses incurred in connection with attending meetings.
Mr. Ralph Bartel chose not to receive any compensation for his services as a director. The following table shows
compensation information for Travelzoo’s directors for fiscal year ended December 31, 2015.
Name
Mr. Holger Bartel
Mr. Ralph Bartel
Mr. Michael Karg
Mr. Neale-May
Ms. Mary Reilly
Ms. Beatrice Tarka
Ms. Caroline Tsay
Fees Earned
or Paid in
Cash ($)
231,720
—
80,240
89,640
118,520
19,207
19,207
Total ($)
231,720
—
80,240
89,640
118,520
19,207
19,207
Certain Relationships and Related Party Transactions
The Company maintains policies and procedures to ensure that our directors, executive officers and employees avoid
conflicts of interest. Our Chief Executive Officer and Chief Financial Officer are subject to our Code of Ethics and each signs
the policy to ensure compliance. Our Code of Ethics requires our leadership to act with honesty and integrity, and to fully
disclose to the Audit Committee any material transaction that reasonably could be expected to give rise to an actual or apparent
conflict of interest. The Code of Ethics requires that our leadership obtain the prior written approval of the Audit Committee
before proceeding with or engaging in any conflict of interest. Moreover, employees are required to read and comply with our
Guide to Business Conduct, which is a communication to all employees that ensures they are aware of their responsibility to
avoid any conflicts of interest or potential conflicts of interest and to make appropriate disclosures to their manager or other
personnel.
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Our General Counsel and/or Chief Financial Officer review(s) all material related party transactions involving the
Company and any of the Company's principal shareholders or members of our board of directors, nominees, or senior
management or any immediate family member of any of the foregoing. When a potential related party transaction is identified,
the General Counsel and/or the Chief Financial Officer will evaluate the transaction and determine whether the transaction
requires the review and approval by the Audit Committee or a special committee of the Board consisting of independent
directors (“Special Committee”). A general statement that the Audit Committee may review related party transactions is set
forth in our audit committee charter, which was attached as Appendix A to our proxy statement for the 2008 Annual Meeting of
Stockholders which has been filed with the SEC. Upon submission to the Audit Committee or a Special Committee, such
committee will consider relevant facts and circumstances surrounding each related party transaction and any matters the
committee deems appropriate. If the Audit Committee or a Special Committee determines that any such related party
transaction creates a conflict of interest situation or would require disclosure under Item 404 of Regulation S-K, as promulgated
by the SEC, the transaction must be approved by the committee prior to the Company entering into such transaction or ratified
thereafter. Transactions or relationships previously approved by the Audit Committee or a Special Committee in existence prior
to the formation of the committee do not require approval or ratification.
Ralph Bartel, who founded Travelzoo and who is a director of the Company, is the sole beneficiary of the Ralph Bartel
2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. (“Azzurro”). As of March 10, 2016, Azzurro is the
Company's largest stockholder, holding approximately 51.7% of the Company's outstanding shares.
On August 20, 2015, Travelzoo acquired the Travelzoo Asia Pacific business (“Asia Pacific”), which includes the
Travelzoo businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently
operated by Azzurro Capital Inc. under a licensing agreement with Travelzoo Inc. The Company held an option right to acquire
Asia Pacific at fair market value as determined by a third party valuation expert. Under the terms of the definitive acquisition
agreement, Travelzoo (Europe) Limited, a United Kingdom subsidiary of the Company, was authorized by the Company to
exercise the option right to acquire Asia Pacific for a fair market transaction value of $22.6 million, subject to a working capital
adjustment. As part of the acquisition, Travelzoo (Europe) Limited issued a promissory note to Azzurro with a principal amount
of $5.7 million, with a maturity date of August 20, 2018 and the ability to pay off principal prior to this maturity date with no
prepayment penalty and a stated interest rate of 7%. In January 2016, the full amount of the loan was paid off by Travelzoo
(Europe) Limited.
Family Relationships
Holger Bartel, chairman of the Board of Directors and Global Chief Executive Officer, and Ralph Bartel, a member of
the Board of Directors, are brothers. Except for Holger Bartel and Ralph Bartel, there are no familial relationships among any
of our officers and directors.
Involvement in Certain Legal Proceedings
To our knowledge, during the last ten years, none of our directors and executive officers has: (i) had a bankruptcy
petition filed by or against any business of which such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (ii) been convicted in a criminal proceeding or been subject to a pending
criminal proceeding, excluding traffic violations and other minor offenses; (iii) been subject to any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (iv) been
found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to
have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated; or
(v) been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-
regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
12
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the named executive officers of Travelzoo as of
March 10, 2016.
Name
Holger Bartel
Glen Ceremony
Vivian Hong
Richard Singer
Michael Stitt
Age
49
48
42
37
36
Position
Chairman of the Board and Global Chief Executive Officer
Chief Financial Officer
President, Asia Pacific
President, Europe
President, North America
Holger Bartel, Ph.D., has been Travelzoo's Global Chief Executive Officer since January 2016. He has been the
Chairman of the Board of Directors since July 2010. From September 2015 to December 2015, he was Travelzoo's Executive
Chairman. From October 2011 to October 2013, he was Head of Strategy. From October 2008 to June 2010, he was Travelzoo's
Chief Executive Officer. From September 1999 to November 2007, he was Executive Vice President. From 1995 to 1998, he
was Engagement Manager at McKinsey & Company, a global management consulting firm. From 1992 to 1994, he was a
research fellow at Harvard Business School. Holger Bartel holds a Ph.D. in Economics and an MBA in finance and accounting
from the University of St. Gallen, Switzerland. He is the brother of Ralph Bartel.
Glen Ceremony has been Chief Financial Officer since June 2011. From October 2004 to June 2011, Mr. Ceremony
worked at Ebay, Inc. and most recently served as Corporate Controller. In 2004, Mr. Ceremony was Senior Director of Global
Finance Audit at Electronic Arts Inc. From 1998 to 2004, Mr. Ceremony worked at PWC LLP and from 1990 to 1998 he was at
Coopers & Lybrand LLP. Mr. Ceremony received his B.S. in Business Administration from California State University,
Sacramento.
Vivian Hong has been President, Asia Pacific since October 2015 after service as co-Chief Executive Officer of Asia
Pacific from January 2015 to January 2016, and President of China from June 2011 to January 2015. From October 2010 to
June 2011, she was Online Business Director, of Dell Greater China. From January 2007 to January 2008, Ms. Hong was Head
of Marketing for eBay & Paypal China. From May 2000 to April 2006, Ms. Hong served as General Manager of Alibaba
Shanghai. Ms. Hong holds a Bachelor’s degree in engineering from the Shanghai Jiao Tong University.
Richard Singer has been President, Europe since July 2012 after service as Commercial Director, Europe from January
2012 to July 2012. From August 2003 to January 2012, Mr. Singer worked at Telegraph Media Group and most recently served
as General Manager, Telegraph Travel. Mr. Singer holds a BSc(Hons) degree in Sports Science and Management, and an MSc
in Management postgraduate degree, each from Loughborough University, United Kingdom.
Michael Stitt has been President, North America at Travelzoo since October 2015. He was most recently Senior Vice
President, overseeing local and entertainment categories, publishing and product planning in North America. From October
2004 to May 2010, he contributed to and then led Travelzoo’s production team. Mr. Stitt has also served as Global Head of
Mobile Strategy since December 2013. Prior to joining Travelzoo, Mr. Stitt was with Meredith Corporation. He received a
Bachelor of Arts degree in Advertising from Iowa State University. He also holds an MBA from the Sloan School of
Management at Massachusetts Institute of Technology.
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APPROVAL OF OPTIONS GRANTS (PROPOSAL 2)
Option Agreement with Global Chief Executive Officer
The Company entered into a Nonqualified Stock Option Agreement (the “Option Agreement”) with Holger Bartel, Global
Chief Executive Officer, on September 28, 2015, pursuant to which the Company granted Mr. Bartel the option (the “Option”)
to purchase 400,000 shares of the Company’s common stock. The Option will begin to partly vest on March 31, 2016, but will
not be exercisable until stockholder approval. Stockholders are being asked to approve the issuance of common stock which is
issuable to Mr. Bartel upon exercise of the Option. The principal terms of the Option Agreement are summarized below. The
following summary is qualified in its entirety by the full text of the Option Agreement, which is incorporated herein by
reference to Exhibit 10.24 to the Company’s report on Form 8-K, filed October 1, 2015.
Exercisability of Option
The exercise price of the Option is $8.07 per share. The option will become exercisable in accordance with the following
schedule:
Vesting Date
March 31, 2016
June 30, 2016
September 30, 2016
December 31, 2016
March 31, 2017
June 30, 2017
September 30, 2017
December 31, 2017
Percentage of Option Vesting
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
Mr. Bartel must exercise the Option by September 28, 2025; after such date, the Option will expire.
Exercise of Option
Mr. Bartel may exercise, in whole or in part, the Option by delivering to the Company not less than 30 days prior to the
exercise date (or such shorter period the Company may approve) a written notice of exercise, designating the number of shares
to be purchased, along with payment of the full amount of the purchase price of the shares being purchased. The purchase price
of the shares subject to the option may be paid for (i) in cash, (ii) in the discretion of the Board of Directors, by tender of shares
of Common Stock already owned by Mr. Bartel, or (iii) in the discretion of the Board of Directors, by such other method as the
Board of Directors may determine.
Adjustment of Option
As is customary in stock option agreements of this nature, the number of shares subject to the Option and exercise price
are subject to adjustment in the event there is any change in the number of shares of outstanding common stock of the Company
by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar
event.
Transfer Restrictions
The Option is not transferable by Mr. Bartel other than by will or the laws of descent and distribution and may be
exercised during Mr. Bartel’s lifetime only by him or his guardian or legal representative.
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Effect of Termination of Employment
If Mr. Bartel’s employment with the Company is terminated without cause (other than by reason of his death or
disability), and subject to Mr. Bartel signing and not revoking a general release of claims as set forth in Appendix A of the
Option Agreement, Mr. Bartel’s stock options shall immediately vest in full on the date of termination. The option shall remain
exercisable for three months following the date of termination and any unexercised options shall be null and void if not
exercised by that date. Should Mr. Bartel be terminated for cause (as defined in his Employment Agreement), should he
voluntarily resign from the Company, or in the event of death or disability, Mr. Bartel’s (or, in the event of death, the legatee or
legatees of Mr. Bartel under his last will, or his personal representatives or distributees) right to exercise the option, to the
extent it was vested and he was entitled to exercise it on the date of termination of employment, shall continue for three months
after such termination but not after September 28, 2025. If Mr. Bartel (or, in the event of death, the legatee or legatees of Mr.
Bartel under his last will, or his personal representatives or distributees) does not exercise the option within the three months
following such termination of employment, any unexercised options shall be null and void.
Registration
The Company has registered the shares of common stock made available under the Option Agreement under the
Securities Act of 1933, as amended.
Personal Interest
Mr. Holger Bartel is Travelzoo's Chairman of the Board and the Global Chief Executive Officer.
Option Agreement with President, Europe
The Company entered into a Nonqualified Stock Option Agreement (the “Option Agreement”) with Richard Singer,
president, Europe, on March 7, 2016, pursuant to which the Company granted Mr. Singer the option (the “Option”) to purchase
50,000 shares of the Company’s common stock. The Option will begin to partly vest on March 7, 2017. Stockholders are being
asked to approve the issuance of common stock which is issuable to Mr. Singer upon exercise of the Option. The principal
terms of the Option Agreement are summarized below. The following summary is qualified in its entirety by the full text of the
Option Agreement, which is incorporated herein by reference to Exhibit 10.30 to the Company’s report on Form 10-K, filed on
March 14, 2016.
Exercisability of Option
The exercise price of the Option is $8.55 per share. The Option will become exercisable in accordance with the following
schedule:
Vesting Date
March 7, 2017
March 7, 2018
March 7, 2019
March 7, 2020
Percentage of Stock Options Vesting
25%
25%
25%
25%
Mr. Singer must exercise the Option by March 7, 2026; after such date, the Option will expire.
Exercise of Option
Mr. Singer may exercise, in whole or in part, the Option by delivering to the Company not less than 30 days prior to the
exercise date (or such shorter period the Company may approve) a written notice of exercise, designating the number of shares
to be purchased, along with payment of the full amount of the purchase price of the shares being purchased. The purchase price
of the shares subject to the option may be paid for (i) in cash, (ii) in the discretion of the Board of Directors, by tender of shares
of Common Stock already owned by Mr. Singer, or (iii) in the discretion of the Board of Directors, by such other method as the
Board of Directors may determine.
15
Adjustment of Option
As is customary in stock option agreements of this nature, the number of shares subject to the Option and exercise price
are subject to adjustment in the event there is any change in the number of shares of outstanding common stock of the Company
by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar
event.
Transfer Restrictions
The Option is not transferable by Mr. Singer except upon prior written consent of the Company or by will or the laws of
descent and distribution and may be exercised during Mr. Singer’s lifetime only by him or his guardian or legal representative.
Effect of Termination of Employment
If Mr. Singer’s employment with the Company is terminated, including in the event of his death or disability, any portion
of the Option which is not then exercisable will immediately terminate. With respect to any portion of the Option which is then
exercisable on the date of termination of employment, Mr. Singer (or, in the event of his death, his legatee(s) under his last will,
or his personal representatives or distributes) may exercise the Option for a period of ninety (90) days following such
termination, but in no event after March 7, 2026.
Registration
The Company has registered the shares of common stock made available under the Option Agreement under the
Securities Act of 1933, as amended.
Personal Interest
Mr. Richard Singer is Travelzoo's President, Europe.
Option Agreement with President, North America
The Company entered into a Nonqualified Stock Option agreement (the “Option Agreement”) with Michael Stitt,
president, North America, on March 7, 2016, pursuant to which the Company granted Mr. Stitt the option (the “Option”) to
purchase 100,000 shares of the Company’s common stock. The Option will begin to partly vest on March 7, 2017. Stockholders
are being asked to approve the issuance of common stock which is issuable to Mr. Stitt upon exercise of the Option. The
principal terms of the Option Agreement are summarized below. The following summary is qualified in its entirety by the full
text of the Option Agreement, which is incorporated herein by reference to Exhibit 10.29 to the Company’s report on Form 10-
K, filed on March 14, 2016.
Exercisability of Option
The exercise price of the Option is $8.55 per share. The Option will become exercisable in accordance with the following
schedule:
Vesting Date
March 7, 2017
March 7, 2018
March 7, 2019
March 7, 2020
Percentage of Stock Options Vesting
25%
25%
25%
25%
Mr. Stitt must exercise the Option by March 7, 2026; after such date, the Option will expire.
16
Exercise of Option
Mr. Stitt may exercise, in whole or in part, the Option by delivering to the Company not less than 30 days prior to the
exercise date (or such shorter period the Company may approve) a written notice of exercise, designating the number of shares
to be purchased, along with payment of the full amount of the purchase price of the shares being purchased. The purchase price
of the shares subject to the option may be paid for (i) in cash, (ii) in the discretion of the Board of Directors, by tender of shares
of Common Stock already owned by Mr. Stitt, or (iii) in the discretion of the Board of Directors, by such other method as the
Board of Directors may determine.
Adjustment of Option
As is customary in stock option agreements of this nature, the number of shares subject to the Option and exercise price
are subject to adjustment in the event there is any change in the number of shares of outstanding common stock of the Company
by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar
event.
Transfer Restrictions
The Option is not transferable by Mr. Stitt except upon prior written consent of the Company or by will or the laws of
descent and distribution and may be exercised during Mr. Stitt’s lifetime only by him or his guardian or legal representative.
Effect of Termination of Employment
If Mr. Stitt’s employment with the Company is terminated, including in the event of his death or disability, any portion of
the Option which is not then exercisable will immediately terminate. With respect to any portion of the Option which is then
exercisable on the date of termination of employment, Mr. Stitt (or, in the event of his death, his legatee(s) under his last will, or
his personal representatives or distributes) may exercise the Option for a period of ninety days following such termination, but
in no event after March 7, 2026.
Registration
The Company has registered the shares of common stock made available under the Option Agreement under the
Securities Act of 1933, as amended.
Personal Interest
Mr. Michael Stitt is Travelzoo's President, North America.
The Company is generally entitled to a federal income tax deduction in an amount equal to the difference between the
exercise price of the Option and the fair market value of the shares at the time of exercise, and the Optionees would generally
recognize taxable income in that amount.
Vote Required
Approval of this proposal requires the affirmative vote of a majority of the shares of the Company’s Common Stock
present in person or represented by proxy and entitled to vote on the proposal.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
“FOR” THE APPROVAL OF THIS PROPOSAL RELATING TO THE OPTION AGREEMENTS.
17
ADVISORY VOTE ON THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS (PROPOSAL 3)
Section 14A of the Exchange Act requires that we include in this proxy statement a non-binding stockholder vote on
our executive compensation as described herein (commonly referred to as "Say-on-Pay").
We encourage stockholders to review the Compensation Discussion and Analysis included in this proxy statement.
Our executive compensation program has been designed to pay for performance and align our executive compensation with
business strategies focused on long-term growth and creating value for stockholders while also paying competitively and
focusing on the total compensation perspective. We feel this design is evidenced by the following:
• Our goal is to attract, motivate and retain key executives and to reward executives for value creation.
• We provide a significant portion of our total compensation in the form of performance-based compensation; for
example, approximately 32% to 82% of our named executive officers' total compensation for 2015 was in the
form of performance-based compensation based on the achievement of quarterly corporate financial measures
such as revenue, operating income and audience marketing.
• This is not a mechanical process, and our Board of Directors uses its judgment and experience and works with our
Compensation Committee to determine the appropriate mix of compensation for each individual.
The Board of Directors strongly endorses the Company's executive compensation program and unanimously
recommends that stockholders vote in favor of the following resolution:
RESOLVED, that the stockholders approve the compensation of our named executive officers, as disclosed
pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis and the
other tabular and narrative disclosure in the Company's proxy statement for its 2016 Annual Meeting of Stockholders.
Required Vote
Because the vote is advisory, it will not be binding upon the Board of Directors or the Compensation Committee and
neither the Board of Directors nor the Compensation Committee will be required to take any action as a result of the outcome of
the vote on this proposal. The Compensation Committee will consider the outcome of the vote when considering future
executive compensation arrangements. The affirmative vote of the majority of the shares of the Company's Common Stock
present in person or represented by proxy and entitled to vote on the proposal will be considered as the approval, by an advisory
vote, of the compensation of our named executive officers.
Board of Directors' Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE ADVISORY RESOLUTION RELATING TO THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS.
18
COMPENSATION DISCUSSION AND ANALYSIS
We hold annual votes on executive compensation, in accordance with shareholder recommendation made at the 2015
annual meeting. In light of last year's shareholder approval of the compensation for executives, there were no significant
changes in executive compensation.
Overview of Compensation Program
The following Compensation Discussion and Analysis, or ("CD&A"), describes our overall compensation philosophy
and the primary components of our compensation program. Furthermore, the CD&A explains the process by which the
Compensation Committee, or "Committee", determined the 2015 compensation for our Chief Executive Officer, Chief
Financial Officer and other most highly compensated officers. We refer to these individuals collectively as the "named
executives" or the "named executive officers."
Compensation Philosophy and Objectives
The fundamental objectives of our executive compensation program are to attract and retain highly qualified executive
officers, motivate these executive officers to materially contribute to our long-term business success, and align the interests of
our executive officers and stockholders by rewarding our executives for individual and corporate performance based on targets
established by the Committee.
We believe that achievement of these compensation program objectives enhances long-term profitability and
stockholder value. The elements utilized to help achieve the Committee's objectives include the following:
• Accountability for Individual Performance. Compensation should in large part depend on the named executive's
individual performance in order to motivate and acknowledge the key contributors to our success.
• Recognition for Business Performance. Compensation should take into consideration our overall financial
performance and overall growth.
• Attracting and Retaining Talented Executives. Compensation should generally reflect the competitive marketplace
and be designed to attract and retain superior employees in key competitive positions.
We implement our compensation philosophy through setting base salaries for our executive officers, through the use of
our executive bonus plan and through reviewing and approving other terms of employment agreements.
Compensation Determination Process
Compensation Committee Members. The Committee is responsible for establishing, overseeing and reviewing
executive compensation policies and for approving, validating and benchmarking the compensation and benefits for named
executive officers. The Committee is also responsible for determining the fees paid to our outside directors. The Committee
includes Mr. Michael Karg (chair) and Ms. Mary Reilly. Mr. Karg and Ms. Reilly satisfied the independence requirements of
the NASDAQ.
Role of Management. During 2015, the Committee engaged in its annual review of executive compensation with the
goal of ensuring the appropriate combination of fixed and variable compensation linked to individual and corporate
performance. In the course of its review, the Committee considered the advice and input of the Company's Chief Executive
Officer (CEO) and data prepared by management, including a comparison of the current compensation of the named executive
officers with publicly available information. Management did rely on a service from Equilar Inc., a compensation research firm,
to provide peer executive compensation data from proxies and a compensation survey for comparison purposes. However,
management did not receive advice from Equilar in setting our executive compensation. The data utilized by the Committee
included salary and total compensation information based on the title, job description, and geographic location of similarly
situated executives. The most significant aspects of the CEO's role in the compensation determination process are evaluating
employee performance, establishing business performance targets, goals and objectives and recommending salary and bonus
levels. The CEO does not participate in discussions regarding his compensation.
The Committee compared the compensation received by the Company's named executive officers with the levels of
compensation received by similarly situated executives in the same geographic location in light of the named executives'
responsibilities, performance, experience and tenure, in order to arrive at the total compensation package for each of the named
executive officers. In some cases, the compensation package that the Committee awarded a named executive officer was at or
below the median compensation received by executives compared to third-party data, while in other instances the compensation
was higher due to the executive's responsibilities, performance, experience and tenure.
19
The Committee did not engage an outside consulting firm to provide advice on executive compensation.
Components of Executive Compensation
The Committee has structured an executive compensation program comprised of base salary, cash bonus, equity and
non-equity incentive pay.
Base Salary
The Committee considered two types of potential base salary increases for the named executive officers in 2015: (1)
"merit increases" based upon each named executive's individual performance; and/or (2) "market adjustments" based upon the
salary range for similarly situated executives.
In determining merit increases, the Committee considers the specific responsibilities of the executive and the
executive's overall performance and tenure with the Company. In addition, the Committee also considers the CEO's evaluation
of each named executive officer in making the decision regarding merit increases.
The Committee determines any market adjustments based on the Committee's comparison of the executive's
compensation with statistical information on average compensation for similarly situated executives that is publicly available.
The Committee did not make any changes to the base salaries of its named executive officers.
Incentive Bonus Pay
In 2015, 2014 and 2013, Mr. Christopher Loughlin, Mr. Glen Ceremony, Ms. Vivian Hong, Mr. Richard Singer, Mr.
Michael Stitt, and Mr. Simon Talling-Smith received incentive bonuses pursuant to the terms of their employment agreements
and the discretion of the Board of Directors.
Pursuant to the terms of Mr. Loughlin's employment agreement dated November 18, 2009, effective July 1, 2010 and
as amended January 1, 2013 and August 1, 2013, Mr. Loughlin was eligible to receive a quarterly Performance Bonus as set
forth below.
Mr. Loughlin was eligible to receive a quarterly Performance Bonus for each quarter during 2015. The quarterly
Performance Bonus is calculated based upon worldwide revenue, operating income and audience targets. The revenue bonus is
calculated based upon a sliding scale that ranges from 95% through 105% achievement of the target resulting in a potential
bonus that ranges from $28,000 to $56,000. The quarterly revenue bonus at 100% of target is $46,667 and the maximum
revenue bonus is $56,000. The revenue bonus requires that there are no more than two significant customers and that no
significant customer is 17% or more than worldwide revenue. The operating income bonus is calculated based upon a sliding
scale that ranges from 90% through 105% achievement of the target resulting in a potential bonus that ranges from $28,000 to
$56,000. The quarterly operating income bonus at 100% of target is $46,666 and the maximum operating income bonus is
$56,000. The audience bonus is calculated based upon achievement of certain audience targets resulting in a potential bonus of
up to $46,667. The total maximum Performance Bonus per quarter for the revenue, operating income and audience components
combined is $158,667.
Mr. Loughlin earned a quarterly bonus for revenue for the first and second quarters, operating income for the first and
fourth quarters and audience for the first and third quarters of 2015. Mr. Loughlin received Performance Bonuses totaling
$235,593 during 2015. For 2015, Mr. Loughlin received 37% of the maximum Performance Bonus. The Company believes that
targets set for worldwide revenue, operating income and audience align with the Company's desire to continue to grow the
business. Since the individual targets are intended to be challenging, and since the separate targets related to different aspects of
the Company's performance, it is expected it will be difficult for all the targets to be achieved for any given year.
Pursuant to the terms of Mr. Ceremony's employment agreement dated May 9, 2011, effective June 15, 2011 and as
amended January 1, 2013, Mr. Ceremony is eligible to receive a quarterly Performance Bonus for each quarter during 2015.
The quarterly Performance Bonus is calculated based upon worldwide revenue, operating income and audience targets.
The revenue bonus is calculated based upon a sliding scale that ranges from 95% through 105% achievement of the target
resulting in a potential bonus that ranges from $10,000 to $20,000. The quarterly revenue bonus at 100% of target is $16,667
and the maximum revenue bonus is $20,000. The revenue bonus requires that there are no more than two significant customers
and that no significant customer is 17% or more than worldwide revenue. The operating income bonus is calculated based upon
a sliding scale that ranges from 90% through 105% achievement of the target resulting in a potential bonus that ranges from
$10,000 to $20,000. The quarterly operating income bonus at 100% of target is $16,667 and the maximum operating income
20
bonus is $20,000. The audience bonus is calculated based upon achievement of certain audience targets resulting in a potential
bonus of up to $16,666. The total maximum Performance Bonus per quarter for the revenue, operating income and audience
components combined is $56,666.
Mr. Ceremony earned a quarterly bonus for revenue for the first and second quarters, operating income for the first and
fourth quarters and audience for the third quarter of 2015. Mr. Ceremony received Performance Bonuses totaling $81,799
during 2015. For 2015, Mr. Ceremony received 36% of the maximum Performance Bonus. The Company believes that targets
set for worldwide revenue, operating income and audience align with the Company's desire to continue to grow the business.
Since the individual targets are intended to be challenging, and since the separate targets related to different aspects of the
Company's performance, it is expected it will be difficult for all the targets to be achieved for any given year.
Pursuant to the terms of Ms. Hong's employment agreement dated June 7, 2014, Ms. Hong was eligible to receive a
quarterly Performance Bonus as set forth below. Ms. Hong's Performance Bonus is payable in Chinese Yuan and has been
translated into US dollars (at the rate of 6.21 RMB to $1.00) for the purposes of this summary.
Ms. Hong was eligible to receive a quarterly Performance Bonus for each quarter during 2015. The quarterly
Performance Bonus is calculated based upon Asia Pacific revenue, operating income and audience targets. The revenue bonus is
calculated based upon achievement of the target resulting in a potential and maximum bonus of $5,510. The operating income
bonus is calculated based upon achievement of the target resulting in a potential and maximum bonus of $5,510. The audience
bonus is calculated based upon achievement of certain audience targets resulting in a potential and maximum bonus of $5,510.
The total maximum Performance Bonus per quarter for the revenue, operating income and audience components combined is
$16,530.
Ms. Hong earned a quarterly bonus for revenue for the first quarters and operating income for the first, second and
third quarters of 2015. Ms. Hong received Performance Bonuses totaling $22,040 during 2015. For 2015, Ms. Hong received
33% of the maximum Performance Bonus. The Company believes that targets set for Asia Pacific revenue, operating income
and audience targets align with the Company's desire to continue to grow the business. Since the individual targets are intended
to be challenging, and since the separate targets related to different aspects of the Company's performance, it is expected it will
be difficult for all the targets to be achieved for any given year.
Ms. Hong also received a Discretionary Bonus determined by the Chief Executive Officer at his sole and absolute
discretion. In exercising such discretion, the Chief Executive Officer takes into consideration Ms. Hong’s individual
performance. In evaluating Ms. Hong’s individual performance during 2015, the Chief Executive Officer considered factors
such as Ms. Hong’s leadership role in developing the Asia Pacific business and team. Ms. Hong received a Discretionary Bonus
totaling $179,178 for 2015.
Pursuant to the terms of Mr. Singer's employment agreement dated October 31, 2011, effective January 16, 2012 and
as amended July 1, 2012 and January 1, 2013, Mr. Singer is eligible to receive a quarterly Performance Bonus for each quarter
during 2015. Mr. Singer's Performance Bonus is payable in British pounds and has been translated into US dollars (at the rate of
£1 to $1.53) for the purposes of this summary.
The quarterly Performance Bonus is calculated based upon Europe revenue, operating income and audience targets.
The revenue bonus is calculated based upon a sliding scale that ranges from 95% through 105% achievement of the target
resulting in a potential bonus that ranges from $18,344 to $36,689. The quarterly revenue bonus at 100% of target is $30,754
and the maximum revenue bonus is $36,689. The operating income bonus is calculated based upon a sliding scale that ranges
from 90% through 110% achievement of the target resulting in a potential bonus that ranges from $18,344 to $36,689. The
quarterly operating income bonus at 100% of target is $30,754 and the maximum operating income bonus is $36,689. The
audience bonus is calculated based upon achievement of certain audience targets resulting in a potential bonus of up to $15,287.
The total maximum Performance Bonus per quarter for the revenue, operating income and audience components combined is
$88,665.
Mr. Singer earned a quarterly bonus for revenue for the revenue and operating income for all quarter and audience for
the third and fourth quarters of 2015. Mr. Singer received Performance Bonuses totaling $289,108 during 2015. For 2015,
Mr. Singer received 82% of the maximum Performance Bonus. The Company believes that targets set for Europe revenue,
operating income and audience align with the Company's desire to continue to grow the business. Since the individual targets
are intended to be challenging, and since the separate targets related to different aspects of the Company's performance, it is
expected it will be difficult for all the targets to be achieved for any given year.
21
Pursuant to the terms of Mr. Stitt's employment agreement dated May 1, 2011, as amended October 1, 2014, and
October 1, 2015, Mr. Stitt was eligible to receive a quarterly Performance Bonus as set forth below.
Mr. Stitt was eligible to receive a quarterly Performance Bonus for the first, second and third quarters during 2015.
The quarterly Performance Bonus is calculated based upon North America combined Travel and Local revenue, operating
income and non-financial targets. The revenue bonus is calculated based upon a sliding scale that ranges from 95% through
105% achievement of the target resulting in a potential bonus that ranges from $12,000 to $24,000. The quarterly revenue
bonus at 100% of target is $20,000 and the maximum revenue bonus is $24,000. The operating income bonus is calculated
based upon a sliding scale that ranges from 90% through 110% achievement of the target resulting in a potential bonus that
ranges from $12,000 to $24,000. The quarterly operating income bonus at 100% of target is $20,000 and the maximum
operating income bonus is $24,000. The non-financial target bonus is calculated based upon achievement of certain non-
financial targets resulting in a potential bonus of up to $10,000. The total maximum Performance Bonus per quarter for the
revenue, operating income and audience components combined is $58,000.
Mr. Stitt was eligible to receive a quarterly Performance Bonus for the fourth quarter of 2015. The quarterly
Performance Bonus is calculated based upon North America revenue, operating income and audience targets. The revenue
bonus is calculated based upon achievement of the target resulting in a potential and maximum bonus of $14,500. The revenue
bonus requires that there are no more than two significant customers and that no significant customer is 15% or more than
North America revenue and together do not account for 25% of North America revenue. The operating income bonus is
calculated based upon achievement of the target resulting in a potential and maximum bonus of $14,500. The audience bonus is
calculated based upon achievement of certain audience targets resulting in a potential and maximum bonus of $14,500. The
total maximum Performance Bonus per quarter for the revenue, operating income and audience components combined is
$43,500.
Mr. Stitt earned a quarterly bonus for revenue for the first and second quarters, operating income for the first and
fourth quarters and non-financial targets for the first, second and third quarters of 2015. Mr. Stitt received Performance Bonuses
totaling $69,139 during 2015. For 2015, Mr. Stitt received 32% of the maximum Performance Bonus. The Company believes
that targets set for North America revenue, operating income and non-financial targets align with the Company's desire to
continue to grow the business. Since the individual targets are intended to be challenging, and since the separate targets related
to different aspects of the Company's performance, it is expected it will be difficult for all the targets to be achieved for any
given year.
Mr. Stitt also received a Discretionary Bonus determined by the Chief Executive Officer at his sole and absolute
discretion. In exercising such discretion, the Chief Executive Officer takes into consideration Mr. Stitt’s individual
performance. In evaluating Mr. Stitt’s individual performance during 2015, the Chief Executive Officer considered factors such
as Mr. Stitt’s leadership role in developing the North America business and team. Mr. Stitt received a Discretionary Bonuses
totaling $14,500 for 2015.
Pursuant to the terms of Mr. Talling-Smith's employment agreement dated April 12, 2013, effective August 1, 2013,
Mr. Talling-Smith is eligible to receive a quarterly Performance Bonus and a quarterly non-financial bonus for each of the
quarters during 2015.
The quarterly Performance Bonus is calculated based upon revenue, operating income and non-financial targets. The
revenue bonus is calculated based upon a sliding scale that ranges from 95% through 105% achievement of the target resulting
in a potential bonus that ranges from $15,000 to $30,000. The quarterly revenue bonus at 100% of target is $25,000 and the
maximum revenue bonus is $30,000. The operating income bonus is calculated based upon a sliding scale that ranges from 90%
through 110% achievement of the target resulting in a potential bonus that ranges from $15,000 to $30,000. The quarterly
operating income bonus at 100% of target is $25,000 and the maximum operating income bonus is $30,000. The non-financial
target bonus is calculated based upon achievement of certain non-financial targets resulting in a potential bonus of up to
$25,000. The total maximum Performance Bonus per quarter for the revenue, operating income and audience components
combined is $85,000.
Mr. Talling-Smith earned a quarterly bonus for revenue for the first and second quarters, operating income for the first
and fourth quarters and the non-financial targets for the first, second and third quarters of 2015. Mr. Talling-Smith received
Performance Bonuses totaling $135,150 during 2015. For 2015, Mr. Talling-Smith received 40% of the maximum Performance
Bonus. The Company believes that targets set for revenue, operating income and non-financial targets align with the Company's
desire to continue to grow the business. Since the individual targets are intended to be challenging, and since the separate
targets related to different aspects of the Company's performance, it is expected it will be difficult for all the targets to be
achieved for any given year.
22
Mr. Talling-Smith also received a Discretionary Bonus determined by the Board of Directors at their sole and absolute
discretion. In exercising such discretion, the Board of Directors and the Chief Executive Officer takes into consideration Mr.
Talling-Smith’s individual performance. In evaluating Mr. Talling-Smith’s individual performance during 2015, the Chief
Executive Officer considered factors such as Mr. Talling-Smith’s leadership role in developing products and the overall
business and team. Mr. Talling-Smith received a Discretionary Bonuses totaling $50,000 for 2015.
Other Compensation-Related Matters
Stock Options. The Company grants certain executive officers stock options (which represent the right to purchase a
specific number of shares of company common stock at a predetermined price, subject to vesting conditions), to align their
incentives with the long-term interests of our stockholders, retain them for the long term, reward them for potential long-term
contributions, and provide a total compensation opportunity commensurate with our performance.
In September 2015, the Company granted Mr. Holger Bartel stock options to purchase 400,000 shares of common
stock with an exercise price of $8.07, which vests in eight equal quarterly installments over a two-year period ending December
31, 2017. The Compensation Committee and Board of Directors considered Mr. Holger Bartel's increased duties and
responsibilities in his capacity as Chairman of the Board to oversee and determine the status of responsibilities of the Chief
Executive Officer prior to the Chief Executive Officer's departure on December 31, 2015, and to formally assume the Global
Chief Executive Officer role on January 1, 2016.
Perquisites and Additional Benefits. The Company seeks to maintain an open and inclusive culture in its facilities and
operations among executives and other Company employees. Accordingly, the Company does not provide executives with
reserved parking spaces or separate dining or other facilities, nor does the Company have programs for providing personal-
benefit perquisites to executives, such as club dues or defraying the cost of personal entertainment. Named executive officers
and employees may seek reimbursement for business related expenses in accordance with our business expense reimbursement
policy.
Employment Agreements. The Company has entered into employment agreements with the named executive officers,
some of which contain severance and change of control provisions. The terms of such employment agreements are described in
more detail below in Employment Agreements and Potential Payments Upon Termination or Change-in-Control. The
Committee believes these agreements are appropriate for a number of reasons, including the following:
•
•
•
the agreements assist in attracting and retaining executives as we compete for talented employees in a marketplace
where such agreements are commonly offered;
the change in control provisions require terminated executives to execute a release in order to receive severance
benefits; and
the change in control and severance provisions help retain key personnel during rumored or actual acquisitions or
similar corporate changes.
Compensation Committee Interlocks & Insider Participation
The current members of our compensation committee are Mr. Karg and Ms. Reilly. In 2015, none of our executive
officers served as a member of the compensation committee of another entity, or as a director of another entity, one of whose
executive officers served on our compensation committee.
23
Summary Compensation Table
The following summary compensation table sets forth information concerning the compensation to our Chief
Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers during the fiscal
years ended December 31, 2015, 2014 and 2013.
Name and Principal Position Fiscal Year Salary ($)
Bonus ($)
(a)
Option
Awards
($) (b)
Non-Equity
Incentive Plan
Compensation
($) (c)
All Other
Compensation
($) (d)
Total ($)
Holger Bartel (1)
Chairman of the Board and
Global Chief Executive
Christopher Loughlin (2)
Chief Executive Officer
Glen Ceremony
Chief Financial Officer
Vivian Hong (3)
President, Asia Pacific
Richard Singer (4)
President, Europe
Michael Stitt (5)
President, North America
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
—
—
502,123
600,000
581,000
562,000
470,000
460,000
450,000
—
—
—
1,767,200
—
—
60,000
1,415,250
—
25,000
88,889
284,904
179,178
287,563
242,007
11,121
9,312
305,740
329,284
311,573
320,000
285,000
260,000
9,099
14,500
29,500
65,000
—
—
—
235,593
48,887
184,364
81,799
22,223
116,178
22,040
55,606
57,034
289,108
128,725
291,295
69,139
43,500
40,000
231,720
1,998,920
231,720
21,993
601,500
1,500
24,429
3,903
3,869
3,903
—
—
—
27,932
26,980
24,168
1,500
1,500
1,500
231,720
524,116
1,437,093
631,387
2,246,043
555,702
511,092
658,970
486,122
354,290
308,352
622,780
484,989
636,135
405,139
359,500
366,500
Simon Talling-Smith (6)
2015
402,500
50,000
135,150
239,513
827,163
President, Products &
Emerging Business
2014
2013
420,000
175,000
85,625
62,500
17,903
29,802
523,528
267,302
Notes to the Summary Compensation Table
(1) Mr. Holger Bartel was an employee through October 31, 2013, was granted options on September 28, 2015 to oversee
the transition of the Chief Executive Officer and to assume the role of Global Chief Executive Officer effective
January 1, 2016.
(2) Mr. Loughlin's employment terminated on December 31, 2015 and in exchange for executing a general release of
claims was entitled to receive $600,000.
24
Notes to the Summary Compensation Table
(3) Ms. Hong joined the Company with the acquisition of the Travelzoo Asia Pacific business in August 2015. Ms.
Hong's compensation is denominated in Chinese Yuan and was translated into U.S. dollars using the annual average
daily exchange rate of ¥6.21 = $1.00 for 2015, ¥6.15 = $1.00 for 2014 and ¥6.20 = $1.00 for 2013.
(4) Mr. Singer's compensation is denominated in British pounds and was translated into U.S. dollars using the annual
average daily exchange rate of £1 = $1.53 for 2015, £1 = $1.65 for 2014 and £1 = $1.56 for 2013.
(5) Mr. Stitt was promoted to President, North America in October 2015.
(6) Mr. Talling-Smith's employment terminated on December 14, 2015 and in exchange for executing a general release of
claims was entitled to receive $210,000.
(a) Amounts consist of discretionary bonuses earned per the terms of employment agreements and/or at the discretion of
the Chief Executive Officer or Board of Directors.
(b)
The values reported reflect the aggregate grant date fair value of grants of stock options to each of the listed officers
in the years shown. The grant date fair value of stock options is calculated using the Black-Scholes option pricing
model. For a more detailed discussion on the valuation model and assumptions used to calculate the fair value of our
options, refer to Note 9 to the consolidated financial statements contained in our 2015 Annual Report on Form 10-K
filed on March 14, 2016.
(c)
The amounts reflected in this column reflect the performance-based cash awards paid to the named executives
pursuant to certain employment agreements, as discussed in the CD&A above.
(d)
The amounts reflected in this column reflect all other compensation paid to the named executives as noted below:
Mr. Holger Bartel's other compensation represents Board of Directors fees paid to him in his role as Executive
Chairman and Chairman of the Board of Directors.
Mr. Loughlin's other compensation for 2015 is a separation payment of $600,000 and a $1,500 Company matching
401(k) plan contribution, for 2014 is a $1,500 Company matching 401(k) plan contribution and for 2013 is a housing
allowance of $22,929 and a $1,500 Company matching 401(k) plan contribution.
Mr. Ceremony's other compensation for 2015, 2014 and 2013 is a $1,500 Company matching 401(k) plan contribution
for each year and the remaining amount for each year for a bonus payment made to eligible employees.
Mr. Singer's other compensation for 2015, 2014 and 2015 is $21,402, $23,050 and $21,840, respectively, for the
Company's contribution to the UK Employee Pension Contribution Plan and $3,646, $3,930, and $2,328, respectively,
for premiums paid for private health insurance for Mr. Singer and his family and in 2015 the remaining amount is a
bonus payment made to eligible employees.
Mr. Stitt's other compensation for 2015, 2014 and 2013 is a $1,500 Company matching 401(k) plan contribution for
each year.
Mr. Talling-Smith's other compensation for 2015 is a separation payment of $210,000, accrued vacation of $29,513
and the remaining amount is a bonus payment made to eligible employees. Other compensation for 2014 and 2013 is
$17,903 and $29,802, respectively, for a housing allowance.
25
Grants of Plan-Based Awards in 2015
The following table sets forth certain information with respect to non-equity incentive plan awards granted to each of
our named executive officers during the fiscal year ended December 31, 2015.
Name (1)
Christopher Loughlin
Glen Ceremony
Vivian Hong
Richard Singer
Michael Stitt
Simon Talling-Smith
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards
Target
($)
560,004
200,000
66,120
305,740
200,000
300,000
Maximum
($)
634,668
226,664
66,120
354,658
232,000
340,000
Threshold
($)
224,000
80,000
66,120
146,755
96,000
120,000
(1) Amount represents the potential annual Performance Bonus payments under the terms of employment agreement. The
business measurements and performance goals for determining the Performance Bonus payout are described in the CD&A.
t
Outstanding Equity Awards at December 31, 2015
Name
Holger Bartel (1)
Christopher Loughlin (2)
Glen Ceremony (3)
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
—
300,000
25,000
37,500
400,000
—
—
12,500
Option
Exercise
Price ($)
8.07
14.97
29.58
28.98
Option Expiration Date
September 28, 2025
March 31, 2016
March 31, 2016
January 23, 2022
(1) The options are exercisable in quarterly increments of 12.5% from March 31, 2016 through December 31, 2017.
(2) The options are exercisable until March 31, 2016.
(3) The remaining unexercisable options became exercisable on January 23, 2016.
Option Exercises and Stock Vested
For the year ended December 31, 2015, there were no options exercised by any of our named executive officers. For
the year ended December 31, 2015, 325,000 shares of Mr. Loughlin's stock options were vested and 37,500 shares of Mr.
Ceremony's stock options were vested, respectively.
Employment Agreements and Potential Payments Upon Termination or Change-in-Control
The Company has employment agreements with its named executive officers and certain other employees. The
employment agreements as of December 31, 2015 with the Company's named executive officers are described below.
Mr. Holger Bartel entered into an employment agreement with the Company on September 28, 2015. In connection
with his employment agreement, the Company granted Mr. Holger Bartel stock options to purchase 400,000 shares of the
Company’s common stock due his to increased duties and responsibilities in his capacity as Chairman of the Board to oversee
and determine the status of responsibilities of the Chief Executive Officer prior to the Chief Executive Officer's departure on
26
December 31, 2015, and the assumption of the Global Chief Executive Officer role on January 1, 2016. The Company may
terminate the agreement, with or without cause, upon written notice to Mr. Holger Bartel. However, if Mr. Holger Bartels's
employment is terminated at any time without cause, Mr. Holger Bartel's stock options to purchase 400,000 shares of the
Company’s common stock will immediately vest in full on the date of termination.
Mr. Holger Bartel agreed that the Company will own any discoveries and work product (as defined in the agreement)
made during the term of his employment and to assign all of his interest in any and all such discoveries and work product to the
Company.
Mr. Loughlin entered into an employment agreement with the Company on November 18, 2009, pursuant to which he
became the Company's Chief Executive Officer on July 1, 2010. This agreement was amended on effective January 1, 2013 and
August 1, 2013 and had a four year term ending on June 30, 2017. The Company could terminate the agreement, with or
without cause, upon written notice to Mr. Loughlin. However, if Mr. Loughlin's employment was terminated at any time
without cause or if Mr. Loughlin's employment was terminated at any time due to a change of control (as defined in the
agreement) or if he was not offered a position of comparable pay and responsibilities in the same geographic area in which he
worked immediately prior to a change of control, Mr. Loughlin would be entitled to receive his base salary and medical benefits
for a twelve month period in exchange for executing a general release of claims as to the Company. Mr. Loughlin’s employment
was terminated effective December 31, 2015 and, in exchange for executing a general release of claims, Mr. Loughlin was
entitled to receive $600,000 and medical benefits of approximately $28,750. Mr. Loughlin has until March 31, 2016 to exercise
his fully vested stock options to purchase 300,000 shares of the Company's common stock.
Mr. Loughlin agreed that the Company owns any discoveries and work product (as defined in his employment
agreement) made during the term of his employment and assigned all of his interest in any and all such discoveries and work
product to the Company. Furthermore, Mr. Loughlin agreed not to, directly or indirectly, perform services for, or engage in, any
business competitive with the Company or solicit the Company's customers or employees during the term of his employment
and for a period of one year thereafter.
Mr. Ceremony entered into an employment agreement with the Company on June 15, 2011. Pursuant to the terms of
the agreement, Mr. Ceremony is an at-will employee and the Company or Mr. Ceremony may terminate the agreement, with or
without cause, upon three months notice. However, if Mr. Ceremony's employment is terminated at any time without cause,
Mr. Ceremony will be entitled to receive his base salary for a six month period in exchange for executing a general release of
claims as to the Company. Assuming that Mr. Ceremony was terminated by the Company as of December 31, 2015 without
cause, Mr. Ceremony would have been entitled to receive $235,000. If Mr. Ceremony's employment is terminated at any time
due to a change of control (as defined in the agreement) or if he is not offered a position of comparable pay and responsibilities
in the same geographic area in which he worked immediately prior to a change of control, Mr. Ceremony will be entitled to
receive his base salary and medical benefits for a six month period in exchange for executing a general release of claims as to
the Company. Assuming that Mr. Ceremony was terminated by the Company as of December 31, 2015 following a change of
control of the Company, Mr. Ceremony would have been entitled to receive $235,000 and the Company would incur additional
expenses for medical benefits of approximately $5,064.
Mr. Ceremony agreed that the Company will own any discoveries and work product (as defined in the agreement)
made during the term of his employment and to assign all of his interest in any and all such discoveries and work product to the
Company. Furthermore, Mr. Ceremony agreed to not, directly or indirectly, solicit the Company's customers or employees
during the term of his employment and for a period of one year thereafter.
Ms. Hong entered into an employment agreement with the Company on June 7, 2014. Pursuant to the terms of the
agreement, Ms. Hong was an at-will employee and the Company or Ms. Hong may terminate the agreement, with or without
cause, with or without notice. However, if Ms. Hong's employment is terminated at any time without cause, Ms. Hong would be
entitled to receive her base salary for a three month period in exchange for executing a general release of claims as to the
Company. Assuming that Ms. Hong was terminated by the Company as of December 31, 2015 without cause, Ms. Hong would
have been entitled to receive $71,226.
Mr. Singer entered into an employment agreement with the Company on January 26, 2012 as amended on July 1,
2012. Pursuant to the terms of the agreement, Mr. Singer is an at-will employee and the Company or Mr. Singer may terminate
the agreement, with or without cause upon six months, prior written notice. However, if Mr. Singer's employment is terminated
at any time without cause, Mr. Singer will be entitled to receive his base salary for a six month period in exchange for executing
a general release of claims as to the Company. Assuming that Mr. Singer was terminated by the Company as of December 31,
2015 without cause, Mr. Singer would have been entitled to receive $152,870.
27
Mr. Singer agreed that the Company will own any discoveries and work product (as defined in the agreement) made
during the term of his employment and to assign all of his interest in any and all such discoveries and work product to the
Company. Furthermore, Mr. Singer agreed to not, directly or indirectly, solicit the Company's customers or employees during
the term of his employment and for a period of one year thereafter.
Mr. Stitt entered into an employment agreement with the Company on May 1, 2011 and on September 30, 2015.
Pursuant to the terms of the agreement, Mr. Stitt is an at-will employee and the Company or Mr. Stitt may terminate the
agreement, with or without cause, upon two weeks notice. However, if Mr. Stitt's employment is terminated at any time without
cause, Mr. Stitt will be entitled to receive his base salary for a six month period in exchange for executing a general release of
claims as to the Company. Assuming that Mr. Stitt was terminated by the Company as of December 31, 2015 without cause,
Mr. Stitt would have been entitled to receive $160,000. If Mr. Stitt's employment is terminated at any time due to a change of
control (as defined in the agreement) or if he is not offered a position of comparable pay and responsibilities in the same
geographic area in which he worked immediately prior to a change of control, Mr. Stitt will be entitled to receive his base salary
and medical benefits for a six month period in exchange for executing a general release of claims as to the Company. Assuming
that Mr. Stitt was terminated by the Company as of December 31, 2015 following a change of control of the Company, Mr. Stitt
would have been entitled to receive $160,000 and the Company would incur additional expenses for medical benefits of
approximately $5,064.
Mr. Stitt agreed that the Company will own any discoveries and work product (as defined in the agreement) made
during the term of his employment and to assign all of his interest in any and all such discoveries and work product to the
Company. Furthermore, Mr. Stitt agreed to not, directly or indirectly, solicit the Company's customers or employees during the
term of his employment and for a period of one year thereafter.
Mr. Talling-Smith entered into an employment agreement with the Company on April 12, 2013. Pursuant to the terms
of the agreement, Mr. Talling-Smith was an at-will employee and the Company or Mr. Talling-Smith could terminate the
agreement, with or without cause, upon three months notice. However, if Mr. Talling-Smith's employment was terminated at
any time without cause, Mr. Talling-Smith would be entitled to receive his base salary for a six month period in exchange for
executing a general release of claims as to the Company. If Mr. Talling-Smith's employment was terminated at any time due to a
change of control (as defined in the agreement) or if he is not offered a position of comparable pay and responsibilities in the
same geographic area in which he worked immediately prior to a change of control, Mr. Talling-Smith was entitled to receive
his base salary and medical benefits for a six month period in exchange for executing a general release of claims as to the
Company. Mr. Talling-Smith’s employment was terminated effective December 14, 2015 and, in exchange for executing a
general release of claims, Mr. Talling-Smith was entitled to receive $210,000 and medical benefits of approximately $5,064.
Mr. Talling-Smith agreed that the Company owns any discoveries and work product (as defined in the agreement)
made during the term of his employment and assigned all of his interest in any and all such discoveries and work product to the
Company. Furthermore, Mr. Talling-Smith agreed not to, directly or indirectly, perform services for, or engage in, any business
competitive with the Company or solicit the Company's customers or employees during the term of his employment and for a
period of one year thereafter.
28
Forward-Looking Statements
Disclosures in this Compensation Discussion & Analysis may contain certain forward-looking. Statements that do not
relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as "anticipate,"
"estimate," "approximate," "expect," "intend," "plan," "believe" and other words of similar meaning in connection with any
discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements
contained in this report include the matters discussed regarding the expectation of compensation plans, strategies, objectives,
and growth and anticipated financial and operational performance of the Company and its subsidiaries. A variety of factors
could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance and results of
the Company's business and forward-looking statements include, but are not limited to those set forth herein. Any forward-
looking statement speaks only as of the date on which such statement is made and the Company does not intend to correct or
update any forward-looking statements, whether as a result of new information, future events or otherwise.
Compensation Committee Report
The information contained in this report shall not be deemed to be "soliciting material" or "filed" with the SEC or
subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Travelzoo specifically incorporates it by
reference into a document filed under the Securities Act or the Exchange Act.
The Company's Compensation Committee has reviewed and discussed the CD&A with management and, based on
such review and discussions, the Compensation Committee recommended to the Company's Board of Directors that the CD&A
be included in the proxy statement on Schedule 14A.
Compensation Committee
Michael Karg (Chair)
Mary Reilly
29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the amount of our common stock beneficially owned as of March 10, 2016 by (a) each
director and nominee for election to the Board of Directors, (b) each named executive officer, (c) all executive officers and
directors as a group, and (d) each person known by the Company, as of March 10, 2016, to beneficially own more than 5% of
the outstanding shares of common stock of the Company. In general, shares "beneficially owned" include those shares a person
has or shares the power to vote, or the power to dispose of.
Beneficial Owner
Directors and Named Executive Officers
Holger Bartel
Ralph Bartel * (3)
Michael Karg
Donovan Neale-May
Mary Reilly
Beatrice Tarka
Caroline Tsay
Christopher Loughlin
Glen Ceremony
Vivian Hong
Richard Singer
Michael Stitt
Simon Talling-Smith
Directors and executive officers as a group (13 persons)
* Persons Owning More Than 5% of Common Stock
** Less than 1%
Beneficial Ownership
Number of
Shares (1)
Percent of
Total (2)
7,430,538
—
—
—
—
—
—
51.65%
—
—
—
—
—
325,000
2.26%
50,000
—
—
3,500
4,000
**
—
—
**
**
7,813,038
54.30%
(1) Represents shares subject to stock options that are exercisable on March 10, 2016 or become exercisable within 60 days of
March 10, 2016. Except as otherwise indicated and subject to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all their shares of common stock.
(2) For each person and group indicated in this table, percentage ownership is calculated by dividing the number of shares
beneficially owned by such person or group by the sum of 14,387,412 shares of common stock outstanding as of March 10,
2016, plus the number of shares of common stock that such person or group had the right to acquire within 60 days after
March 10, 2016.
(3) Ralph Bartel indirectly holds a controlling interest of Azzurro Capital Inc., which is the holder of 7,430,538 shares, through
the Ralph Bartel 2005 Trust.
30
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's directors, executive officers and the
beneficial holders of more than 10% of the Company's common stock are required to file reports of ownership and changes in
ownership with the SEC. Such directors, executive officers and beneficial holders of more than 10% of the Company's common
stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such forms furnished to the Company or
written representations from reporting persons, during fiscal 2015, all Section 16(a) filing requirements were satisfied on a
timely basis.
31
Independent Public Accountants
PRINCIPAL ACCOUNTANT FEES AND SERVICES
KPMG LLP ("KPMG") served as Travelzoo's independent registered public accounting firm for our 2015 fiscal year.
KPMG representatives are expected to be present at the Annual Meeting and will be available to respond to questions at the
meeting; however, they are not expected to make a formal statement.
The Audit Committee has not yet selected our independent registered public accounting firm for our 2016 fiscal year.
The Audit Committee annually reviews the performance of our independent registered public accounting firm and the fees
charged for their services. This review has not yet been completed. Based upon the results of this review, the Audit Committee
will determine which independent registered public accounting firm to engage to perform our annual audit. Stockholder
approval of our accounting firm is not required by our bylaws or otherwise required to be submitted to the stockholders.
Principal Accountant Fees and Services
During fiscal year 2015 and 2014, KPMG charged fees for services rendered to Travelzoo as follows:
Service
Audit fees(1)
Audit-related fees
Tax fees
All other fees
Total
2015 Fees
$1,440,704
—
—
—
$1,440,704
2014 Fees
$1,061,698
—
—
—
$1,061,698
(1) Audit fees consisted of fees for professional services rendered for the annual audit of Company’s consolidated financial
statements and review of the interim consolidated financial statements included in the quarterly reports and audit services
rendered in connection with other statutory or regulatory filings.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered
Public Accounting Firm
The Audit Committee pre-approves all audit and permissible non-audit services provided by the Company's
independent registered public accounting firm. These services may include audit services, audit-related services, tax and other
services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or
category of services and is generally subject to a specific budget. The independent registered public accounting firm and
management are required to periodically report to the Audit Committee regarding the extent of services provided by the
independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to
date. The Audit Committee may also pre-approve particular services on a case-by-case basis. During 2015 and 2014, all
services provided by KPMG were pre-approved by the Audit Committee in accordance with this policy.
32
AUDIT COMMITTEE REPORT
The information contained in this report shall not be deemed to be "soliciting material" or "filed" with the SEC or
subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except to the
extent that Travelzoo specifically incorporates it by reference into a document filed under the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act.
The Audit Committee oversees Travelzoo's financial reporting process on behalf of the Board of Directors.
Management is primarily responsible for the financial statements and reporting processes including the systems of internal
controls, while the independent auditors are responsible for performing an independent audit of Travelzoo's consolidated
financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board ("PCAOB"),
and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the
United States.
In this context, the committee has met and held discussions with management and the independent auditors regarding
the Company's audited consolidated financial statements for the fiscal year ended December 31, 2015. The committee discussed
with Travelzoo's independent auditors the overall scope and plan for their audit. The committee met, at least quarterly, with the
independent auditors, with and without management present, and discussed the results of their examinations, their evaluations
of Travelzoo's internal controls, and the overall quality of Travelzoo's financial reporting. Management represented to the
committee that Travelzoo's consolidated financial statements were prepared in accordance with accounting principles generally
accepted in the United States. The committee has reviewed and discussed the consolidated financial statements with
management and the independent auditors, including their judgments as to the quality, not just the acceptability, of Travelzoo's
accounting principles and such other matters as are required to be discussed with the committee under auditing standards of the
PCAOB.
Travelzoo's independent auditors also provided to the committee the written disclosures required by applicable
requirements of the PCAOB regarding the independent accountant's communications with the audit committee concerning
independence, and the committee discussed with the independent auditors that firm's independence, including those matters
required to be discussed by Statement on Auditing Standards No. 16, as amended.
In reliance on the reviews and discussions referred to above, the committee recommended to the Board of Directors
(and the Board of Directors has approved) that the audited financial statements be included in the Annual Report on Form 10-K
for the fiscal year ended December 31, 2015 filed with the SEC. The committee has not yet selected Travelzoo's independent
auditors for fiscal year 2016.
While the committee has the responsibilities and powers set forth in its charter, it is not the duty of the committee to
plan or conduct audits or to determine that Travelzoo's financial statements are complete and accurate and are in accordance
with generally accepted accounting principles. This is the responsibility of management and the independent auditors. Nor is it
the duty of the committee to conduct investigations or to assure compliance with laws and regulations or Travelzoo's business
conduct policies.
Audit Committee
Michael Karg (Chair)
Donovan Neale-May
Michael Karg
33
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information into this document. This means that the Company can
disclose important information to you by referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except for any information that is superseded by
information that is included directly in this document or in any other subsequently filed document that also is incorporated by
reference herein.
This document incorporates by reference our Annual Report on Form 10-K for the fiscal year ended December 31,
2015, which was filed previously with the SEC and contains important information about the Company and its financial
condition, including information contained in our 2015 Annual Report under the captions "Financial Statements and
Supplementary Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure," and "Quantitative and Qualitative Disclosures
about Market Risk." Copy of the 2015 Annual Report accompany this proxy statement.
The Company will amend this proxy statement to include or incorporate by reference any additional documents that
the Company may file with the Securities and Exchange Commission under Section 13(a), 13(e), 14, or 15(d) of the Exchange
Act after the date of this document to the extent required to fulfill our disclosure obligations under the Exchange Act.
The Company will provide, without charge, to each person to whom this proxy statement is delivered, upon written or
oral request of such person and by first class mail or other equally prompt means within one business day of receipt of such
request, a copy of any and all information that has been incorporated by reference in this proxy statement. You may obtain a
copy of these documents and any amendments thereto by contacting Investor Relations, Travelzoo Inc., 590 Madison Avenue,
37th Floor, New York, New York 10022 or by telephone at (212) 484-4900. This proxy statement and the 2015 Annual Report
are available on the Internet at corporate.travelzoo.com/annualreport. These documents are also included in our SEC filings,
which you can access electronically at the SEC's website at http://www.sec.gov.
34
ADDITIONAL INFORMATION
We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith, we file periodic reports, documents and other information with the SEC relating to our business,
financial statements and other matters. Such reports and other information may be inspected and are available for copying at the
offices of the SEC, 100 F Street, N.E., Washington, D.C. 20549 or may be accessed at www.sec.gov. Information regarding the
operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. You are encouraged to review
the annual report on Form 10-K, as amended, mailed along with these proxy materials, together with any subsequent
information we filed or will file with the SEC and other publicly available information. A copy of any public filing is also
available, at no charge, by contacting Investor Relations, Travelzoo Inc., 590 Madison Avenue, 37th Floor, New York, New
York 10022 or by telephone at (212) 484-4900.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No director, executive officer, nominee for election as a director or associate of any director, executive officer or
nominee has any substantial interest, direct or indirect, by security holdings or otherwise, in the proposed matters to be acted
upon, other than director elections and stock option approval, which is not shared by all other stockholders.
OTHER BUSINESS
The Board of Directors does not presently intend to bring any other business before the meeting, and, so far as is
known to the Board of Directors, no matters are to be brought before the meeting except as specified in the Notice of Annual
Meeting of Stockholders. As to any business that may properly come before the meeting, however, it is intended that proxies, in
the form enclosed, will be voted in respect thereof in accordance with the judgment of the persons voting such proxies.
STOCKHOLDER PROPOSALS FOR THE 2017 ANNUAL MEETING
It is contemplated that the next annual meeting of stockholders will be held on or about May 5, 2017. Stockholders
may submit proposals on matters appropriate for stockholder action at annual meetings in accordance with the rules and
regulations adopted by the SEC. For a stockholder proposal to be included in the Company's proxy statement and identified in
its form of proxy in connection with the Company's annual meeting of stockholders, it must be received by the Company at
least 120 calendar days prior to the one-year anniversary of the date that the Company's proxy statement was released to the
stockholders in connection with the previous year's annual meeting. As a result, stockholder proposals submitted for
consideration at the 2016 annual meeting must be received no later than November 23, 2016, to be included in the 2017 proxy
materials. Rule 14a-8 of the Exchange Act provides additional information regarding the content and the procedures applicable
to the submission of stockholder proposals to be included in the Company's proxy materials for its next Annual Meeting.
If a stockholder wishes to present a proposal at Travelzoo's 2017 Annual Meeting or to nominate one or more directors
and the proposal is not intended to be included in Travelzoo's proxy statement relating to that meeting, the stockholder shall
give advance written notice to Travelzoo not earlier than November 23, 2016 and not later than February 7, 2017. These
requirements are separate from and in addition to the requirements a stockholder must meet to have a proposal included in our
proxy statement.
Any such notice must be delivered or mailed to our corporate secretary, at Travelzoo Inc., 800 W. El Camino Real,
Suite 275, Mountain View, CA 94040.
35
HOUSEHOLDING
We have adopted a procedure approved by the SEC called "householding." Under this procedure, a householding
notice will be sent to stockholders who have the same address and last name and do not participate in electronic delivery of
proxy materials, and they will receive only one copy of our annual report and proxy statement unless one or more of these
stockholders notifies us that they wish to not participate in householding and continue receiving individual copies. This
procedure reduces our printing costs and postage fees. Each stockholder who participates in householding will continue to
receive a separate proxy card.
The Company will promptly deliver, upon oral or written request, a separate copy of the proxy statement and annual
report to any stockholder participating in householding. Stockholders who share an address with other stockholders and are
eligible for householding, but currently receive multiple copies of our annual reports and proxy statements, or who have
multiple accounts in their names, can authorize us to discontinue mailings of multiple annual reports and proxy statements.
Requests for additional copies, or requests for a single copy to be delivered to a shared address should be directed to Investor
Relations, Travelzoo Inc., 590 Madison Avenue, 37th Floor, New York, New York 10022 or by telephone at (212) 484-4900.
HOLGER BARTEL
Chairman of the Board
590 Madison Avenue, 37th Floor
New York, NY 10022
36
TRAVELZOO INC.
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Glen Ceremony as his/her Proxy, with full power of substitution, to represent
him/her at the Annual Meeting of Stockholders of Travelzoo Inc. (the "Company") on May 6, 2016, or any
adjournments or postponements thereof. If you do not indicate how you wish to vote, the proxy card will be
voted for Proposal 1, for the election of all nominees to the Board of Directors, for Proposal 2, for Proposal 3,
and as the Proxy may determine, in his discretion, with regard to any other matter properly presented at the
meeting, or any adjournments or postponements thereof.
This proxy, when properly executed, will be voted as directed by the stockholder.
(Continued, and to be marked, dated and signed, on the other side)
TRAVELZOO INC.
Mailing Instructions
If you receive this proxy card via mail, please date and sign it, and return it in the postage paid envelope provided.
If you receive this proxy card via e-mail, please print the proxy card, date and sign it, and return it to:
Broadridge Financial Solutions, Inc.
51 Mercedes Way,
Edgewood, NY 11717
U.S.A.
37
This proxy card is only valid only when signed and dated.
The Board of Directors recommends a vote FOR all the listed nominees under Proposal 1
1. ELECTION OF DIRECTORS
For All
Withhold All
For All
Except
To withhold authority to vote for any individual
nominee(s), mark "For All Except" and write the
number (s) of the nominee (s) on the line below.
Nominees
01 Holger Bartel 02 Ralph Bartel 03 Michael Karg 04 Donovan Neale-May 05 Mary Reilly
06 Beatrice Tarka 07 Caroline Tsay
The Board of Directors recommends you vote FOR Proposals 2 and 3:
For
Against Abstain
2. APPROVAL OF OPTION GRANTS TO THREE EXECUTIVE OFFICERS
3. ADVISORY VOTE ON THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Please sign exactly as name (s) appear(s) hereon. When signing as
attorney, executor, administrator, or other fiduciary, please give full
title as such. Join owners should each sign personally. All holders
must sign. If a corporation or partnership, please sign in full
corporate or partnership name, by authorized officer.
Signature (Please sign within box)
Date
Signature (Joint Owners)
Date
38
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________
______________________________________________________________________________
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
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
(State or other jurisdiction of
incorporation or organization)
590 Madison Avenue, 37th Floor
New York, New York
(Address of principal executive offices)
36-4415727
(I.R.S. employer
identification no.)
10022
(Zip code)
Registrant’s telephone number, including area code: (212) 484-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 Par Value
(Title of Class)
_________________________________________________________________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
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
No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
1
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
Non-accelerated
filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting com
pany
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
No
As of June 30, 2015, the aggregate market value of voting stock held by non-affiliates of the Registrant, based upon the
closing sales price for the Registrant's common stock, as reported on the NASDAQ Global Select Market, was $82,343,052.
The number of shares of the Registrant's common stock outstanding as of March 14, 2016 was 14,518,655 shares.
Portions of the Registrant's Proxy Statement for its 2016 Annual Meeting of Stockholders are incorporated by reference in
this Form 10-K in response to Part III, Items 10, 11, 12, 13, and 14.
DOCUMENTS INCORPORATED BY REFERENCE
TRAVELZOO INC.
Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
PART IV
Page
3
10
27
27
27
27
28
31
32
49
50
52
53
54
55
56
57
78
78
80
81
81
81
81
82
82
2
Forward-Looking Statements
PART I
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 Inc. 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. Travelzoo's 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 in this Report in Part I Item 1A and the risks discussed in our other Securities and Exchange
Commission (“SEC”) filings. The forward-looking statements included in this Report reflect the beliefs of our management on
the date of this Report. We undertake no obligation to update publicly any forward-looking statements for any reason, even if
new information becomes available or other events or circumstances occur in the future.
Item 1. Business
Overview
Travelzoo Inc. (the “Company” or “Travelzoo”) is a global media commerce company. We inform over 28 million
members in Asia Pacific, Europe and North America, as well as millions of website users, about the best travel, entertainment
and local deals available from thousands of companies. Our deal experts source, research and test-book offers, recommending
only those that meet Travelzoo's rigorous quality standards. We provide travel, entertainment, and local businesses with a fast,
flexible, and cost effective way to reach millions of consumers. Our revenues are generated primarily from advertising fees.
We attract a high-quality audience of travel and leisure enthusiasts across multiple digital platforms, including e-mail,
web, social media and mobile applications. Our e-mail newsletters are published in 11 countries worldwide. Travelzoo’s
website is visited by 8.4 million unique visitors each month. We reach an audience of over 60 million Internet users each month
via the Travelzoo Network, a network of websites that syndicate our deal content, including The Los Angeles Times and The
Chicago Tribune. We have over 3.2 million followers on Facebook and Twitter. Our mobile applications have been downloaded
4.7 million times.
Our publications and products include the Travelzoo websites (travelzoo.com, travelzoo.ca, travelzoo.co.uk, travelzoo.de,
travelzoo.es, travelzoo.fr, cn.travelzoo.com, travelzoo.co.jp, travelzoo.com.au, travelzoo.com.hk, travelzoo.com.tw, among
others), the Travelzoo iPhone and Android applications, 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. Our Travelzoo websites include Local Deals and Getaway listings that allow
our members to purchase vouchers for deals from local businesses such as spas, hotels and restaurants. We receive a percentage
of the face value of the voucher from the local businesses. 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.
On August 20, 2015 we acquired the Travelzoo Asia Pacific business (“Asia Pacific”), which includes the Travelzoo
businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently operated by
Azzurro Capital Inc. ("Azzurro") under a licensing agreement with Travelzoo Inc. Azzurro was the majority stockholder of the
Travelzoo Asia Pacific business. Travelzoo Inc. accounted for the acquisition as a common control transaction and change in
reporting entity. The financial results for Travelzoo Inc. have been retrospectively adjusted to include the financial results of
Asia Pacific in the current and prior periods as though the transaction occurred at the beginning of each period presented. The
Asia Pacific assets and liabilities have been combined with Travelzoo Inc. at their carrying values as though the transaction
occurred at the beginning of each period presented. The Asia Pacific transaction proceeds were reflected as an equity
transaction, included in retained earnings, during the period the transaction occurred, which was in the year ended
December 31, 2015. See Note 13 to the accompanying unaudited condensed consolidated financial statements for further
information on the acquisition of Asia Pacific.
More than 2,000 companies use our services, including Air New Zealand, Apple Vacations, British Airways, Cathay
Pacific Airways, Expedia, Fairmont Hotels and Resorts, Hawaiian Airlines, InterContinental Hotels Group, Interstate Hotels &
Resorts, Lufthansa, Key Tours International, Liberty Travel, Princess Cruises, Singapore Airlines, Solar Tours, Starwood
Hotels & Resorts Worldwide, Travelocity, United Airlines, Vacation Express and Virgin America.
3
Our revenues are advertising revenues, consisting primarily of listing fees paid by travel, entertainment and local
businesses to advertise their offers on Travelzoo's media properties. Listing fees are based on audience reach, placement,
number of listings, number of impressions, number of click-throughs, number of referrals, or percentage of the face value of
vouchers sold. Insertion orders are typically for periods between one month and twelve months and are not automatically
renewed. Merchant agreements for Local Deals and Getaway advertisers are typically for twelve months and are not
automatically renewed.
We have three operating segments based on geographic regions: Asia Pacific, Europe and North America. Asia Pacific
consists of our operations in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. Europe consists of our
operations in France, Germany, Spain, and the U.K. North America consists of our operations in Canada and the U.S. For the
year ended December 31, 2015, Asia Pacific operations were 8% of revenues and European operations were 30% 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.
Our principal business office is located at 590 Madison Avenue, 37th Floor, New York, New York 10022.
Ralph Bartel, who founded Travelzoo and who is a Director of the Company, is the sole beneficiary of the Ralph Bartel
2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. ("Azzurro"). As of December 31, 2015, Azzurro is the
Company's largest stockholder, holding approximately 51.2% of the Company's outstanding shares.
As of December 31, 2015, there were 14,518,655 shares of common stock outstanding.
Travelzoo is listed on the NASDAQ Global Select Market under the symbol “TZOO.”
Our Industry
Our mission is to provide our audience with the highest quality information about the best travel, entertainment and
local deals. We believe there is a sizable travel and entertainment industry that we participate in that provides an opportunity to
find high quality deals for our members and users. Direct spending on leisure travel in the United States by domestic and
international travelers is expected to rise by 4.3% per year to $1,027 billion in 2025 and 78% of the domestic trips were taken
for leisure purposes, according to the U.S. Travel Association. Travel & Tourism produced $7.6 trillion in value (10% of global
GDP) for the global economy in 2014. Visitors from emerging economies now represent a 46% share of these international
arrivals (up from 38% in 2000), according to the World Travel & Tourism Council. In addition, we believe that we are well
positioned with our operations in Asia, Europe and North America to capture high quality deals for our members and users.
While our mission is to provide our audience with the highest quality information about the best travel, entertainment and
local deals, our revenues are generated from advertising fees. According to the Kelsey Group's (BIA/Kelsey) new U.S. Local
Media Forecast 2016, BIA/Kelsey forecasts total local media revenues to reach $146.6 billion in 2016. Online/digital will grow
to $42.6 billion or 29.1% of total local media revenues in 2016. We believe that traditional media outlets such as newspapers,
television and radio continue to be another medium for travel, entertainment and local businesses to advertise their offers,
though the percentage spent on advertising in these traditional media outlets is decreasing. In addition, the continued rise in
smart phones has changed the business rules for online marketing, with the consumption of online advertising rapidly moving
to mobile devices. BIA/Kelsey anticipates that location-targeted mobile advertising revenues will grow from $8.5 billion in
2015 to $11.3 billion in 2016 and local social media revenues will grow from $2.4 billion in 2015 to $3.3 billion in 2016.
We believe that several factors are causing and will continue to cause travel, entertainment and local businesses to
increase their spending on Internet and mobile advertising of offers:
The Internet Is Consumers' Preferred Information Source. Market research shows that the Internet has become
consumers' preferred information source for travel.
Benefits of Internet Advertising vs. Print, TV and Radio Advertising. Internet advertising provides advertisers
advantages compared to traditional advertising. These advantages include real-time listings, real-time updates, and
performance tracking. See “Benefits to Travel, Entertainment and Local Businesses” below.
New Advertising Opportunities. The Internet allows advertisers to advertise their sales and specials in a fast,
flexible, and cost-effective manner that has not been possible before.
Suppliers Selling Directly. We believe that many travel suppliers prefer to sell directly to consumers through
suppliers' websites versus selling through travel agents. Internet advertising attracts consumers to suppliers'
websites.
4
Mobile advertising extends our products and services by providing mobile-specific features to mobile device users.
Mobile advertising is still in its early stage, though mobile devices are quickly becoming the world's newest
gateway for information. We are focused on developing easy-to-use mobile applications to help advertisers extend
their reach, help create revenue opportunities for our advertisers, and deliver relevant and useful ads to users on the
go. We continue to invest in improving users' access to our services through such devices.
Problems Travel, Entertainment and Local Businesses Face and Limitations of Newspaper, TV and Radio Advertising
We believe that travel, entertainment and local businesses often face the challenge of being able to effectively and quickly
market and sell their excess inventory (i.e. airline seats, hotel rooms, cruise cabins, theater seats, spa appointments or restaurant
seats that are likely to be unfilled). The success of marketing excess inventory can have a substantial impact on a company's
profitability. Almost all costs of these services are fixed. That is, the costs do not vary significantly with sales. A relatively
small amount of unsold inventory can have a significant impact on the profitability of a company.
We believe that travel, entertainment and local businesses need a fast, flexible, and cost-effective solution for marketing
excess inventory. The solution must be fast, because services are a quickly expiring commodity. The period between the time
when a company realizes that there is excess inventory and the time when the service has become worthless is very short. The
solution must be flexible, because the demand for excess inventory is difficult to forecast. It is difficult for travel, entertainment
and local businesses to price excess inventory and to forecast the marketing effort needed to sell excess inventory. The
marketing must be cost-effective, because excess inventory is often sold at highly discounted prices, which lowers margins.
We believe that newspaper, TV and radio advertising, with respect to advertising excess inventory, suffers from a number
of limitations which do not apply to the Internet:
•
•
•
•
•
•
typically, ads must be submitted 2 to 5 days prior to the publication or airing date, which makes it difficult to
advertise last-minute inventory;
once an ad is published, it cannot be updated or deleted when an offer is sold out;
once an ad is published, the company cannot change a price or offer;
in many markets, the small number of newspapers, television companies, radio stations and other print media
reduces competition, resulting in high rates for traditional advertising;
offline advertising does not allow for detailed performance tracking; and
creative content can be very expensive to develop.
Our Products and Services
We provide airlines, hotels, cruise lines, vacation packagers, other travel suppliers, entertainment and local businesses
with a fast, flexible, and cost-effective way to reach millions of Internet users. Our publications include the Travelzoo websites,
the Travelzoo Top 20 e-mail newsletter, the Newsflash e-mail alert service, and the Local Deals and Getaway e-mail alert
services. 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 enables users to find and
compare the best flight options from multiple sources, including airline and online travel agency websites. While our products
provide advertising opportunities for travel, entertainment and local businesses, they also provide Internet users with a free
source of information on current sales and specials from thousands of travel, entertainment and local businesses.
As travel, entertainment and local businesses increasingly utilize the Internet to promote their offers, we believe that our
products will enable them to take advantage of the lower cost and real-time communication enabled by the Internet. Our listing
management software allows our advertisers to add, update, and delete special offer listings on a real-time basis. Our software
also provides our advertisers with real-time performance tracking, enabling them to optimize their marketing campaigns.
Mobile advertising extends our products and services by providing mobile-specific features to mobile device users. We are
focused on developing easy-to-use mobile applications to help advertisers extend their reach, help create revenue opportunities
for our customers, and deliver relevant and useful ads to users on the go. We continue to invest in improving users' access to
our services through such devices. In addition, we continue to develop our hotel booking platform, which enables our users to
more easily book hotel stays using our hotel deals presented on our website and mobile devices.
5
The following table presents an overview of our products:
Product
Content
Publication
Schedule
24/7
Reach/Usage*
8.4 million unique
visitors per month
Advertiser Benefits
Broad reach,
sustained exposure,
targeted placements
by destination and
travel segment
Consumer Benefits
24/7 access to deals,
ability to search and
browse by destination
or keyword
Travelzoo websites
Travelzoo Top 20
Newsflash
Local Deals and
Getaway
Websites in the U.S.,
Canada, France,
Germany, Spain, and
the U.K. listing
thousands of
outstanding sales and
specials from more
than 2,000 travel,
entertainment and
local businesses
Popular e-mail
newsletter listing 20
of the week's most
outstanding deals
Regionally-targeted e-
mail alert service with
a single time-sensitive
and newsworthy
travel and
entertainment offer
Within two
hours of an
offer being
identified
Twice per
week in
active
markets
Locally-targeted e-
mail alert service with
a single time-sensitive
and newsworthy offer
from local merchants
such as spas and
restaurants
Weekly
28.0 million members Mass “push”
advertising vehicle to
quickly stimulate
incremental travel and
entertainment
purchases
26.0 million members Regional targeting,
100% share of voice
for advertiser, flexible
publication schedule
Weekly access to 20
outstanding,
handpicked deals
chosen from among
thousands
Breaking news offers
delivered just-in-time
Over 197 local
markets
Local targeting by zip
code,100% share of
voice for the local
businesses, flexible
publication schedule
Breaking news offers
delivered just-in-time
Travelzoo Network
24/7
A network of third-
party websites that list
outstanding deals
published by
Travelzoo
Over 380 third-party
websites
Drives qualified users
with substantial
distribution beyond
the Travelzoo
audience
Contextually relevant
travel deals that have
been handpicked and
professionally
reviewed
Travelzoo Mobile
Applications
SuperSearch
Fly.com
iPhone and Android
applications that
allow users to
discover the best
Travel, Entertainment
and Local Deals.
Travel search tool
using a proprietary
algorithm to
recommend sites and
enable one-click
searching
Travel search engine
that enables users to
find and compare the
best flight, hotel and
rental car options
from multiple sources
On-demand
4.7 million
downloads
On-demand
3.0 million monthly
searches
On-demand
1.6 million monthly
searches
Allows Travel,
Entertainment and
Local Deals
advertisers to reach
our audience that is
on the go.
Drives qualified
traffic directly to
advertiser site on a
pay-per-click basis
24/7 access to Travel,
entertainment and
Local Deals for
consumers that are on
the go.
Saves time and
money by
recommending the
sites most likely to
have great rates for a
specific itinerary
Provides advertisers a
low cost distribution
channel and retention
of the user
engagement on the
advertiser's website
Free access to real-
time price
comparisons from
airlines and online
travel agencies
* For Travelzoo websites, reach information is based on data from Google Analytics. For Top 20, Newsflash, Local Deals and
Getaway, Travelzoo Network, SuperSearch, Fly.com and Travelzoo mobile applications, reach/usage information is based on
internal Travelzoo statistics as of December 31, 2015.
6
Our Audience
We attract a high-quality audience of travel and leisure enthusiasts across multiple digital platforms, including e-mail,
web, social media and mobile apps. We inform our audience about travel, entertainment and local deals available at over 2,000
companies. Our e-mail newsletters are published in 11 countries worldwide. Travelzoo’s website is visited by 8.4 million
unique visitors each month. We reach an audience of over 60 million Internet users each month via the Travelzoo Network, a
network of websites that syndicate our deal content, including The Los Angeles Times and The Chicago Tribune. We have over
3.2 million followers on Facebook and Twitter. Our mobile applications have been downloaded 4.7 million times.
Benefits to Travel, Entertainment and Local Businesses
Our advertisers benefit from accessing our large high-quality audience. Due to the nature of our content, we attract an
older, wealthier demographic who have a strong interest in travel and leisure.
Key features of our solution for travel and entertainment companies include:
•
•
•
•
•
Real-Time Listings of Special Offers. Our technology allows travel and entertainment companies to advertise
special offers on a real-time basis.
Real-Time Updates. Our technology allows travel and entertainment companies to update their listings on a real-
time basis.
Real-Time Performance Reports. We provide travel and entertainment companies with real-time tracking of the
performance of their advertising campaigns. Our solution enables travel and entertainment companies to optimize
their campaigns by removing or updating unsuccessful listings and further promote successful listings.
Access to Millions of Consumers. We provide travel and entertainment companies fast access to over 28 million
travel shoppers.
Global Reach. We offer access to Internet users in Australia, Canada, China, France, Germany, Hong Kong, Japan,
Southeast Asia, Spain, Taiwan, the U.K and U.S.
Key features of our solution for local businesses include:
•
•
•
Real-Time Listings of Special Offers. Our technology allows local businesses to advertise special offers on a real-
time basis.
Real-Time Performance Reports. We provide local businesses with real-time tracking of the performance of their
advertising campaigns.
Access to Local Consumers. Travelzoo members submit their zip code to Travelzoo when they join Travelzoo. As a
result, we are able to send Local Deals to members who live or work near the local businesses.
Benefits to Consumers
Our Travelzoo websites (travelzoo.com, travelzoo.ca, travelzoo.co.uk, travelzoo.de, travelzoo.es, travelzoo.fr,
cn.travelzoo.com, travelzoo.co.jp, travelzoo.com.au, travelzoo.com.hk, travelzoo.com.tw, among others), Travelzoo Top 20 e-
mail newsletter, Newsflash, Local Deals, Getaway, the Travelzoo Network, SuperSearch search tool, and Fly.com search engine
provide consumers information on current offers at no cost to the consumer. Key features of our products include:
•
•
•
•
Aggregation of Offers from Many Companies. Our Travelzoo websites and our Travelzoo Top 20 e-mail newsletter
aggregate information on current offers from more than 2,000 travel, entertainment and local businesses. This saves
the consumer time when searching for travel, entertainment and local deals, sales and specials.
Current Information. Compared to newspaper, TV or radio advertisements, we provide consumers more current
information, since our technology enables travel, entertainment and local businesses to update their listings on a
real-time basis.
Reliable Information. We operate a Test Booking Center to check the availability of travel, entertainment and local
deals before publishing.
Search Tools. We provide consumers with the ability to search for specific offers.
Growth Strategy
Our growth strategy relies on building a travel and lifestyle brand with a large, high-quality user base and offering our
users products that keep pace with consumer preference and technology, such as the trend towards mobile usage by consumers.
7
•
•
Building a travel and lifestyle brand with a large, high-quality user base. We believe that it is essential to establish
a strong brand with a large, high-quality user base within the travel, entertainment and local industries we serve. We
currently utilize online marketing and direct marketing to promote our brand to consumers. We utilize sponsorships
at industry conferences and public relations to promote our brand. We believe that high-quality content attracts a
high-quality user base.
Offering products that keep pace with consumer preference and technology. We believe it is important to grow
engagement of our user base, by offering products that deliver high-quality deals with exceptional value and
expanding our product offering over time to address frequent travel and leisure needs, including the desire to access
our content via mobile devices and to search and book hotels via a hotel booking platform.
Advertisers
As of December 31, 2015, our advertiser base included more than 2,000 travel, entertainment and local businesses,
including airlines, hotels, cruise lines, vacations packagers, tour operators, destinations, car rental companies, travel agents,
theater and performing arts groups, restaurants, spas, and activity companies. Some of our advertisers are:
Ace the Himalaya
AirAsia
Air New Zealand
Atlantis, Paradise Island, Bahamas
Apple Vacations
British Airways
Cathay Pacific Airways
Cirque du Soleil
Delta Air Lines
Expedia
Fairmont Hotels and Resorts
Fareportal
Hawaiian Airlines
Hong Kong Tourism Board
Hotwire
Iceland Air
InterContinental Hotels Group
Interstate Hotels & Resort
Jet Luxury Resorts
Key Tours International
Liberty Travel
Lufthansa
Mandalay Bay Resort and Casino
Park Hyatt Siem Reap
Pleasant Holidays
Priceline
Princess Cruises
Singapore Airlines
Starwood Hotels & Resorts Worldwide
TripAdvisor
United Airlines
Vacation Express
Virgin America
Windstar Cruises
As discussed in Note 12 to the accompanying consolidated financial statements, we did not have any advertisers that
accounted for 10% or more of our total revenues during the years ended December 31, 2015, 2014 and 2013. The agreements
with certain advertisers are in the form of multiple insertion orders and merchant agreements from groups of entities under
common control. It is possible that we may have an advertiser or advertisers that account for 10% or more of our total revenues
in future years because management believes there is a high concentration in the online travel agency industry.
In 2015, 8% of our total revenues were generated from our Asia Pacific operations, 30% of our total revenues were
generated from our European operations and 62% of our total revenues were generated from our North America operations.
See Note 12 to the accompanying consolidated financial statements.
Sales and Marketing
As of December 31, 2015, our advertising sales force and sales support staff consisted of 168 employees worldwide. We
intend to grow our advertiser base by expanding over time the size of our sales force.
We currently utilize online marketing and direct marketing to promote our brand to consumers. In addition, we utilize an
online marketing program to acquire new members for our e-mail publications. We believe that we build brand awareness by
product excellence that is promoted by word-of-mouth. We utilize sponsorships at industry conferences and public relations to
promote our brands.
8
Technology
We have designed our technology to serve a large volume of Web traffic and send a large volume of e-mails in an
efficient and scalable manner.
We co-locate our production servers with Equinix, Inc. (“Equinix”), a global provider of hosting, network, and
application services. Equinix's facilities include features such as power redundancy, multiple egress and peering to other ISPs,
fire suppression and access to our own separate physical space. We believe our arrangements with Equinix will allow us to
grow without being limited by our own physical and technological capacity, and will also provide us with sufficient bandwidth
for our anticipated needs. Because of the design of our websites, our users are not required to download or upload large files
from or to our websites, which allows us to continue increasing the number of our visitors and page views without adversely
affecting our performance or requiring us to make significant additional capital expenditures.
Competition
We compete for advertising dollars with large Internet portal sites such as MSN and Yahoo! that offer listings or other
advertising opportunities to travel, entertainment and local businesses. We compete with search engines like Google and Bing
that offer pay-per-click listings. We compete with travel meta-search engines like Kayak and online travel and entertainment
deal publishers. We compete with large online travel agencies like Expedia, Priceline and TripAdvisor that also offer
advertising placements, airline travel comparisons, hotel booking and capture consumer interest. We compete with companies
like Groupon, Amazon, Gilt City and LivingSocial that sell vouchers for deals from local businesses such as spas, hotels,
restaurants and activity companies. We expect to face increased competition from other Internet and technology-based
businesses such as Google and Amazon, each of which has launched initiatives which are directly competitive to our Local
Deals and Getaway products. In addition, we compete with newspapers, magazines and other traditional media companies that
operate websites which provide advertising opportunities. We expect to face additional competition as other established and
emerging companies, including print media companies, enter our market. We believe that the primary competitive factors are
price, performance and audience quality.
Many of our current and potential competitors have longer operating histories, significantly greater financial, technical,
marketing and other resources and larger advertiser bases than we do. In addition, current and potential competitors may make
strategic acquisitions or establish cooperative relationships to expand their businesses or to offer more comprehensive
solutions.
New technologies could increase the competitive pressures that we face. The development of competing technologies by
market participants or the emergence of new industry standards may adversely affect our competitive position. Competition
could result in reduced margins on our services, loss of market share or less use of our products by our advertisers 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.
Government Regulation and Legal Uncertainties
There are increasing numbers of laws and regulations pertaining to the Internet, including laws and regulations relating to
user privacy, liability for information retrieved from or transmitted over the Internet, online content regulation, and domain
name registration. Moreover, the applicability to the Internet of existing laws governing issues such as intellectual property
ownership and infringement, copyright, patent, trademark, trade secret, obscenity, libel and personal privacy is uncertain and
developing.
Privacy Concerns. We are subject to a number of privacy and similar laws and regulations in the countries in which we
operate and these laws and regulations will likely continue to evolve over time, both through regulatory and legislative action
and judicial decisions. Complying with these varying national requirements could cause us to incur substantial costs or require
us to change our business practices in a manner adverse to our business and violations of privacy-related laws can result in
significant penalties. We post on our websites our privacy policies and practices concerning the collection, use and disclosure
of user data. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory
requirements or orders or other federal, state or international privacy laws and regulations could result in proceedings or actions
against us by governmental entities or others, subject us to penalties and negative publicity, require us to change our business
practices, and increase our costs and adversely affect our business.
Anti-Spam Legislation. The CAN-SPAM Act, a federal anti-spam law, pre-empts various state anti-spam laws and
establishes a single standard for e-mail marketing and customer communications. We believe that this law, on an overall basis,
benefits our business as we do not use spam techniques or practices and may benefit now that others are prohibited from doing
so.
9
Domain Names. Domain names are the user's Internet “addresses.” The current system for registering, allocating and
managing domain names has been the subject of litigation and of proposed regulatory reform. We have registered
travelzoo.com, travelzoo.ca, travelzoo.co.jp, travelzoo.com.au, travelzoo.com.tw, travelzoo.co.uk, travelzoo.de, travelzoo.fr,
weekend.com, and weekends.com, among other domain names, and have registered “Travelzoo” as a trademark in the United
States, Canada, and the European Union. In January 2009, we purchased the domain name Fly.com. Because of these
protections, it is unlikely, yet possible, that third parties may bring claims for infringement against us for the use of our domain
name and trademark. In the event such claims are successful, we could lose the ability to use our domain names. There can be
no assurance that our domain names will not lose their value, or that we will not have to obtain entirely new domain names in
addition to or in lieu of our current domain names if changes in overall Internet domain name rules result in a restructuring in
the current system of using domain names which include “.com,” “.net,” “.gov,” “.edu” and other extensions.
Jurisdictions. Due to the global nature of the Internet, it is possible that, although our transmissions over the Internet
originate primarily in California, the governments of other states and foreign countries might attempt to regulate our business
activities. In addition, because our service is available over the Internet in multiple states and foreign countries, these
jurisdictions may require us to qualify to do business as a foreign corporation in each of these states or foreign countries, which
could subject us to additional taxes and other regulations.
Intellectual Property
Our success depends to a significant degree upon the protection of our brand names, including Travelzoo and Top 20. If
we were unable to protect the Travelzoo and Top 20 brand names, our business could be materially adversely affected. We rely
upon a combination of copyright, trade secret and trademark laws to protect our intellectual property rights. We have registered
the Travelzoo and Top 20 trademarks, among others, with the United States Patent and Trademark Office. We have registered
the Travelzoo and Travelzoo Top 20 trademarks with the Office for Harmonization in the Internal Market of the European
Community. We have registered the Travelzoo trademark in Australia, Canada, China, Hong Kong, Japan, South Korea, and
Taiwan. The steps we have taken to protect our proprietary rights, however, may not be adequate to deter misappropriation of
proprietary information.
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 other 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.
Employees
As of December 31, 2015, we had 473 employees in Asia Pacific, Europe and North America. None of our employees are
represented under collective bargaining agreements. We consider our relations with our employees to be good.
Internet Access to Other Information
We make available free of charge, on or through our website (www.travelzoo.com), annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. Information included on our website does not constitute
part of this report.
Item 1A. 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.
10
Risks Related to Our Financial Condition and Business Model
We cannot assure you that we will be profitable.
In the years ended December 31, 2015, and 2014, we generated a net income of $10.9 million and $13.1 million,
respectively. In the year ended December 31, 2013, we incurred a net loss of $6.6 million. Although we were profitable in 2015
and 2014, 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 advertisers. We may also make investments in our products as well as develop new
products that may impact our profitability. If our revenues grow 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. 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 members 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 planned growth;
our ability to attract users to our websites, which may be adversely affected by the audience shift to mobile
devices;
technical difficulties or system downtime affecting the Internet generally or the operation of our products and
services specifically; and
volatility of our operating results in new markets.
We may significantly increase our operating expenses related to advertising campaigns for the Travelzoo and Fly.com
brands, as well as our hotel booking platform, 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 members.
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.
11
Our expansion of our product offering to include Local Deals and Getaway formats and the addition of a hotel booking
platform may result in additional costs that exceed revenue and may trigger additional stock volatility.
Our Local Deals and Getaway formats of advertising include the sale of vouchers directly to consumers to advertise
promotional deals provided by merchants.
For example, a consumer could buy a voucher for $99 for a dinner for two at a merchant’s restaurant that would normally
be valued at $199, representing a promotional value of $100 to the consumer. This format may require investments to maintain
and grow the business including additional sales force hiring, building a customer service organization, marketing, technology
tracking systems and payment processing. This format, introduced to the market in recent years, has resulted in many
competitors entering the marketplace, thereby creating a very competitive marketplace. This competitive landscape along with
the required investments to start, maintain and grow this format create a risk that our costs may exceed our revenues in the short
and long term, which may materially impact our results of operation and financial condition. Operating this format may
introduce additional volatility to our stock price due to the performance of this format by the Company and/or the overall
market valuations that are being determined by the market for companies operating this format of advertising. Moreover, the
rate at which our existing customers purchase vouchers has declined, and may continue to decline, given, among other things,
increased competition in the marketplace and the decrease in demand of consumers for voucher deals. Historically, our
customers often purchased a voucher when they received our emails, even though they may not have intended to use the
voucher in the near term. The growth in recent periods of competition and the marketplaces of deals has enabled customers to
wait until they are ready to use the related vouchers before making purchases. This shift in purchasing behavior may adversely
impact revenues. While we are continuing to evolve our strategy to address the changing market dynamics, we may not always
be successful in doing so.
In addition, we are in the process of expanding our hotel booking platform which may result in an increase in costs to
further develop the platform in the near-term and an increase in cost structure in the long-term, which may be in excess of
incremental revenue. If our hotel booking platform is not embraced by our users or our advertising partners, our business and
financial results could be adversely affected. In addition, the hotel booking platform will be sensitive to fluctuations in hotel
supply, occupancy and average daily rates and a fluctuation in any of these factors could negatively impact our hotel booking
revenue. We can give no assurances that the hotel booking platform will yield the benefits we expect and will not result in
additional costs or have adverse impacts on our business.
Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-generating
arrangements.
We utilize Internet search engines such as Google, principally through the purchase of travel-related keywords, to
generate additional traffic to our websites. Search engines, including Google, frequently update and change the logic that
determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to
our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our
participation in pay-per-click and display advertising campaigns on search engines, including Google, travel metasearch
engines, including Kayak, and Internet media properties, including TripAdvisor. Pricing and operating dynamics for these
traffic sources can experience rapid change, both technically and competitively. Moreover, a search or metasearch engine could,
for competitive or other purposes, alter its search algorithms or results causing a website to place lower in search query results.
If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or
unpaid, of our websites or that of our third-party distribution partners, or if competitive dynamics impact the costs or
effectiveness of search engine optimization, search engine marketing or other traffic-generating arrangements in a negative
manner, our business and financial performance would be adversely affected, potentially to a material extent.
12
Recent trends in consumer adoption and use of mobile devices create new challenges.
Widespread adoption of mobile devices, such as the iPhone, Android-enabled smart phones, and tablets such as the iPad,
coupled with the improved web browsing functionality and development of thousands of useful “apps” available on these
devices, is driving substantial traffic and commerce activity to mobile platforms. We have experienced a significant shift of
business to mobile platforms and our advertising partners are also seeing a rapid shift of traffic to mobile platforms. Our major
competitors and certain new market entrants are offering mobile applications for travel products and other functionality,
including proprietary last-minute discounts for hotel bookings. Advertising and distribution opportunities may be more limited
on mobile devices given their smaller screen sizes. The gross profit earned on a mobile transaction may be less than that earned
from a typical desktop transaction due to different consumer purchasing patterns. For example, hotel reservations made on a
mobile device typically are for shorter lengths of stay and are not made as far in advance as hotel reservations made on desktop.
Further, given the device sizes and technical limitations of tablets and smartphones, mobile consumers may not be willing to
download multiple applications from multiple travel service providers and instead prefer to use one or a limited number of
applications for their mobile travel activity. As a result, the consumer experience with mobile applications, as well as brand
recognition and loyalty, are likely to become increasingly important. We have made progress creating mobile offerings which
have received strong reviews and have shown solid download trends. We believe that mobile bookings present an opportunity
for growth. Further development of our mobile offerings is necessary to maintain and grow our business as consumers
increasingly turn to mobile devices instead of personal computers and to mobile applications instead of a web browser. Further,
many consumers use a mobile device based web browser instead of an application. As a result, it is increasingly important for
us to develop and maintain effective mobile websites optimized for mobile devices to provide customers with appealing easy-
to-use mobile website functionality. If we are unable to continue to rapidly innovate and create new, user-friendly and
differentiated mobile offerings and efficiently and effectively advertise and distribute on these platforms, or if our mobile
applications are not downloaded and used by travel consumers, we could lose market share to existing competitors or new
entrants and our future growth and results of operations could be adversely affected.
We may have exposure to additional tax liabilities.
As a global company, we are subject to income taxes as well as non-income based tax, in both the United States and
various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and
other tax liabilities. Although we believe that our tax estimates are reasonable, there is no assurance that the final determination
of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate.
We are also subject to non-income based taxes, such as value-added, payroll, sales, use, net worth, property and goods
and services taxes, in both the United States and various foreign jurisdictions. From time to time, we are under audit by tax
authorities with respect to these non-income based taxes and may have exposure to additional non-income based tax liabilities.
These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating income.
The Company's 2009 federal income return is currently under examination, including a review of the impact of the sale of Asia
Pacific business segment in 2009. In connection with this examination, we have received a Revenue Agent’s Report (RAR)
generally issued at the conclusion of an IRS examination, which was consistent with the Notice of Proposed Adjustment we
received earlier from the IRS for the 2009 calendar year related to the sale of our Asia Pacific business segment with the
addition of penalties. The RAR proposes an increase to our U.S. taxable income which would result in additional federal tax
expense, federal penalty and state tax expense totaling approximately $31 million, excluding interest and state penalties, if any.
The proposed adjustment is primarily driven by IRS’s view that the Asia Pacific business segment assets sold by the Company
had a significantly higher valuation than the sales proceeds the Company received upon the sale. The Company disagrees with
the proposed adjustments and intends to vigorously contest them. The Company did not make any adjustments to its liabilities
for uncertain tax positions related to the RAR during the year December 31, 2015 because the Company does not believe the
IRS’s valuation of Asia Pacific business segment assets is appropriate. If we are not able to resolve these proposed adjustments
at the IRS examination level, we plan to pursue all available administrative and, if necessary, judicial remedies. The Company
is not able to predict the ultimate amount or outcome of this tax audit and we may incur additional costs in defending any
claims that may arise, even if we ultimately are not liable for any additional taxes.
Adverse application of state and local tax laws could have an adverse effect on our business and results of operation.
Our expansion of our product offering to include a hotel booking platform may subject us to state and local tax laws and
result in additional tax liabilities. A number of jurisdictions in the United States have initiated lawsuits against other on-line
travel companies, related to, among other things, the payment of hotel occupancy and other taxes (i.e., state and local sales tax).
In addition, a number of municipalities have initiated audit proceedings, issued proposed tax assessments or started inquiries
relating to the payment of hotel occupancy and other taxes.
13
Given that we intend for our hotel booking platform to consist of an agency model whereby we will facilitate reservations
on behalf of a hotel, the payment of hotel occupancy taxes and other taxes should be the responsibility of the merchant. The
intended business practice for our hotel booking platform will primarily be for the merchant to be responsible for remitting
applicable taxes to the various tax authorities. Nevertheless, to the extent that any tax authority succeeds in asserting that we
have a tax collection responsibility, or we determine that we have one, with respect to future transactions, we may collect any
such additional tax obligation from our customers, which would have the effect of increasing the cost of hotel room
reservations to our customers and, consequently, could make our hotel service less competitive (i.e., versus the websites of
other online travel companies or hotel company websites) and reduce hotel reservation transactions. Either step could have a
material adverse effect on our business and results of operations. We will continue to assess the risks of the potential financial
impact of additional tax exposure.
Our business model may not be adaptable to a changing market.
Our current revenue model depends primarily on advertising fees paid 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 and products in
response to changes in the online advertising market or if our current business model is not successful. For example, the trend
toward mobile online traffic will require us to adapt our product offering to facilitate consumers use of our products. If we do
not adapt to this trend fully or quickly enough, we may lose advertising revenue as consumer usage may decline from our non-
mobile traffic. 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.
If we fail to retain existing advertisers or add new advertisers, our revenue and business will be harmed.
We depend on our ability to attract and retain advertisers (hotels, spas, restaurants, vacation packagers, airlines, etc.) that
are prepared to offer products or services on compelling terms to our members. We do not have long-term arrangements to
guarantee the availability of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us.
We must continue to attract and retain advertisers in order to increase revenue and maintain profitability. If new advertisers do
not find our marketing and promotional services effective, or if existing advertisers do not believe that utilizing our products
provides them with a long-term increase in customers, revenue or profit, they may stop making offers through our marketplace.
In addition, we may experience attrition in our advertisers in the ordinary course of business resulting from several factors,
including losses to competitors and advertiser closures or bankruptcies. If we are unable to attract new advertisers in numbers
sufficient to grow our business, or if too many advertisers are unwilling to offer products or services with compelling terms to
our members or offer favorable payment terms to us, we may sell less advertising, and our operating results will be adversely
affected. For example, we may lose advertisers due to market conditions or performance, such as our recent loss of revenue
from certain online booking engines, airlines and vacation packagers. We may not add enough additional revenue, such as hotel
revenue from Getaways or the hotel booking platform, in order to replace the lost revenue. Furthermore, the new revenue may
cost more to generate compared to the costs that the lost revenue required to generate, thereby adversely impacting our
operating results.
Our existing advertisers may shift from one advertising service to another, which may adversely affect our revenue.
Existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals, Getaways or the
hotel booking platform). These shifts between advertising services by advertisers could result in no incremental revenue or less
revenue than in previous periods depending on the amount purchased by the advertisers, and in particular with Local Deals,
Getaways and the hotel booking platform, depending on how many vouchers are purchased by members and how many hotel
bookings are made. In addition, we are anticipating a shift from our existing hotel revenue to commission-based revenue in
connection with the continued expansion of our hotel booking platform capabilities, which may result in lower revenue
depending on volume of hotel bookings.
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An increase in our refund rates related to our Local Deals and Getaway could reduce our liquidity and profitability.
We provide refunds related to our Local Deals and Getaway voucher sales. As we increase our revenue, our refund rates
may exceed our historical levels. A downturn in general economic conditions may also increase our refund rates. An increase in
our refund rates could significantly reduce our liquidity and profitability.
As we do not have control over our merchants and the quality of products or services they deliver, we rely on a
combination of our historical experience with our merchants over time and the type of refunds provided for development of our
estimate for refund claims. Our actual level of refund claims could prove to be greater than the level of refund claims we
estimate. If our refund reserves are not adequate to cover future refund claims, this inadequacy could have a material adverse
effect on our liquidity and profitability.
Our standard agreements with our merchants generally limit the time period during which we may seek reimbursement
for member refunds or claims. Our members may make claims for refunds with respect to which we are unable to seek
reimbursement from our merchants. Our members could also make false or fraudulent refund claims. Our inability to seek
reimbursement from our merchants for refund claims could have an adverse effect on our liquidity and profitability.
If our advertisers do not meet the needs and expectations of our members, our business could suffer.
Our business depends on our reputation for providing high-quality deals, and our brand and reputation may be harmed by
actions taken by advertisers or merchants that are outside our control. For our Local Deals and Getaway merchants, we are
selling vouchers on behalf of the merchants directly to our members and we face exposures should merchants not fully honor
the deals. As for our travel business, we are only collecting an advertising fee from the advertiser and the members are booking
the deal directly with the advertiser. Although the advertiser is responsible to the consumer to provide the consumer the deal it
advertised, our business can be adversely affected should an advertiser fail to comply with the terms of the advertised deal. Any
shortcomings of one or more of our merchants, particularly with respect to an issue affecting the quality of the deal offered or
the products or services sold, may be attributed by our members to us, thus damaging our reputation, brand value and
potentially affecting our results of operations. In addition, negative publicity and member sentiment generated as a result of
fraudulent or deceptive conduct by our merchants or advertisers could damage our reputation, reduce our ability to attract new
members or retain our current members, and diminish the value of our brand.
Our business relies heavily on e-mail and other messaging services, and any restrictions on the sending of e-mails or
messages or a decrease in member willingness to receive messages could adversely affect our revenue and business.
Our business is highly dependent upon e-mail and other messaging services. Deals offered through e-mails and other
messages sent by us, or on our behalf by our affiliates, generate a substantial portion of our revenue. Because of the importance
of e-mail and other messaging services to our businesses, if we are unable to successfully deliver e-mails or messages to our
members or potential members, or if members decline to open our e-mails or messages, our revenue and profitability would be
adversely affected. New laws and regulations regulating the sending of commercial e-mails, including those enacted in foreign
jurisdictions (such as Canada), may affect our ability to deliver of e-mails or messages to our members or potential members
and may also result in increased compliance costs. Further, actions by third parties to block, impose restrictions on, or charge
for the delivery of, e-mails or other messages could also materially and adversely impact our business. From time to time,
Internet service providers block bulk e-mail transmissions or otherwise experience technical difficulties that result in our
inability to successfully deliver e-mails or other messages to third parties. In addition, our use of e-mail and other messaging
services to send communications about our website or other matters may result in legal claims against us, which if successful
might limit or prohibit our ability to send e-mails or other messages. Any disruption or restriction on the distribution of e-mails
or other messages or any increase in the associated costs would materially and adversely affect our revenue and profitability. In
addition, the shift in our website traffic originating from mobile devices accessing our services may decrease our members'
willingness to use our services if they are not satisfied with our mobile user experience and could decrease their willingness to
be an e-mail member, which could adversely affect our revenue and profitability.
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Our reported total number of members may be higher than the number of our actual individual members and may not be
representative of the number of persons who are active potential customers.
The total number of members we report may be higher than the number of our actual individual members because some
members have multiple registrations, other members have died or become incapacitated and others may have registered under
fictitious names. Given the challenges inherent in identifying these members, we do not have a reliable system to accurately
identify the number of actual individual members, and thus we rely on the number of total members shown on our records as
our measure of the size of our member base. In addition, the number of members we report includes the total number of
individuals that have completed registration through a specific date, less individuals who have unsubscribed. Those numbers
may include individuals who do not receive our e-mails because our e-mails have been blocked or are otherwise undeliverable.
As a result, the reported number of members should not be considered as representative of the number of persons who continue
to actively consider our deals by reviewing our e-mail offers.
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.
For the year ended December 31, 2015, our cash and cash equivalents decreased by $20.3 million to $35.1 million, of
which $22.6 million was held outside the U.S. in certain of our foreign operations. We intend to continue to grow our business
and fund our current operations using cash on hand. However, this may not be sufficient to meet our needs, including the
payments required to settle various commitments and contingencies, as described under Note 5 and 6 to the accompanying
consolidated financial statements. 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, existing stockholders may experience
significant dilution of their ownership interest and holders of the additional equity securities may have rights senior to existing
stockholders of our common stock. If we obtain additional financing by issuing debt securities or bank borrowings, the terms of
these arrangements 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 most 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. Moreover, declines or disruptions in the travel
industry could adversely affect our launch of the hotel booking platform and financial performance.
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 to protect us against 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.
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We are subject to payments-related risks.
We accept payments for the sale of vouchers using a variety of methods, including credit cards and debit cards. We pay
interchange and other fees, which may increase over time and raise our operating expenses and lower profitability. We rely on
third parties to provide payment processing services, including the processing of credit cards and debit cards, and it could
disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to
payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could
change or be reinterpreted to make it difficult or impossible for us to comply. Moreover, under payment card rules and our
contracts with our card processors, if there is a security breach of payment card information, we could be liable to the payment
card issuing banks for their cost of issuing new cards and related expenses. If we fail to comply with these rules or
requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card
payments, process electronic funds transfers, or facilitate other types of online payments, and our business and results of
operations could be adversely affected. If one or more of these contracts are terminated and we are unable to replace them on
similar terms, or at all, it could adversely affect our results of operations.
Our reported financial results may be adversely affected by changes in United States generally accepted accounting
principles, and we may incur significant costs to adjust our accounting systems and processes to comply with significant
changes.
United States generally accepted accounting principles are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to
promulgate and interpret appropriate accounting principles. In 2014, the FASB issued a new accounting standard related to
revenue recognition which could change the way we account for certain of our sales transactions. The adoption of this standard
and changes in other principles or interpretations could have a significant effect on our reported financial results and could
affect the reporting of transactions completed before the effective dates of the standard. Such change could have a significant
effect on our reported financial results. In addition, we may need to significantly change our accounting systems and processes
if we are required to adopt future or proposed changes in accounting principles noted above. The cost of these changes may
negatively impact our results of operations during the periods of transition.
Risks Related to Our Markets and Strategy
Our international expansion may result in 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. In addition, from 2007 through 2009, we began operations in Asia Pacific, including in Australia,
China, Hong Kong, Japan, Taiwan, and Southeast Asia.
Our revenues in Europe decreased 8% in 2015 compared to 2014, and our operations in Europe generated an operating
income before tax of $3.9 million and $5.8 million in 2015 and 2014, respectively. We intend to continue adding a significant
number of members 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.
If we incur losses from our operations in the future, these losses may not have any recognizable tax benefit, which is the
case for Asia Pacific business. We expect that this would 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 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:
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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.
Moreover, fluctuations in currency exchange rates can impact our revenues. For example, foreign currency movements
relative to the U.S. dollar have negatively impacted our revenues from our operations in Europe. The uncertainty and volatility
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in foreign exchange rates, which may differ across regions, makes it more difficult to forecast industry and consumer trends and
the timing and degree of their impact on our markets and business, which in turn could adversely affect our ability to
effectively manage our business and adversely affect our results of operations.
In addition, we face risks related to the growth rate and expansion of our international business, including our recent
expansion in Asia Pacific. A decline in the growth rates of our international businesses could have a negative impact on our
gross profit and earnings per share growth rates and, as a consequence, our stock price. Many of these regions have different
customs, currencies, levels of consumer acceptance and use of the Internet for commerce, legislation, regulatory environments,
tax laws and levels of political stability. International markets may have strong local competitors with an established brand that
may make expansion in that market difficult and costly and take more time than anticipated. In addition, compliance with legal,
regulatory or tax requirements in multiple jurisdictions places demands on our time and resources, and we may nonetheless
experience unforeseen and potentially adverse legal, regulatory or tax consequences.
Investment in new business strategies and acquisitions could disrupt our ongoing business and present risks not originally
contemplated.
We have invested, and in the future may invest, in new business strategies and acquisitions. For example, we recently
acquired businesses in Asia Pacific, including Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. If the
businesses we have acquired do not perform as expected or we are unable to effectively integrate acquired businesses, our
operating results and prospects could be harmed. Expansions into foreign markets involve risks and uncertainties, including,
among other things, potential distraction of management from operations in North America and Europe, greater than expected
liabilities and expenses, inadequate return on capital, and unidentified issues not discovered in our investigations and
evaluations of those strategies and acquisitions. It may take us longer than expected to fully realize the anticipated benefits of
the Asia Pacific transaction, and those benefits may ultimately be smaller than anticipated, which could adversely affect our
business. If we are unsuccessful in expanding in new and existing international markets and effectively managing the increased
costs of the expansion, our business, results of operations and financial condition will be adversely affected. We are also subject
to risks typical of international businesses, including differing economic conditions, differing customs, languages and consumer
expectations, changes in political climate, differing tax structures and other regulations and restrictions, including labor laws,
and foreign exchange rate volatility
We may not be able to continue developing awareness of our brand names.
We believe that continuing to build awareness of the Travelzoo brand name 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 brands, incur
significant expenses in promoting our brands 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 names, our business could be
materially adversely affected.
If we fail to retain our existing members or acquire new members, our revenue and business will be harmed.
We spent $9.5 million, $7.9 million and $5.6 million on online marketing initiatives relating to member acquisition for
years ended December 31, 2015, 2014 and 2013 and expect to continue to spend significant amounts to acquire additional
members. We must continue to retain and acquire members in order to maintain or increase revenue. We cannot assure you that
the revenue from members we acquire will ultimately exceed the cost of acquiring new members. If members do not perceive
our offers to be of high value and quality or if we fail to introduce new and more relevant deals, we may not be able to acquire
or retain members. If we reduce our member acquisition costs, we cannot assure you that this will not adversely impact our
ability to acquire new members. If we are unable to acquire new members who purchase our deals directly or indirectly in
numbers sufficient to grow our business, or if members cease to purchase our deals directly or indirectly through our
advertisers, the revenue we generate may decrease and our operating results will be adversely affected. If the level of usage by
our member base declines or does not grow as expected, we may suffer a decline in member growth or revenue. A significant
decrease in the level of usage or member growth would have an adverse effect on our business, financial condition and results
of operations. In addition, a shift of our audience to mobile devices and social media channels without corresponding updates
of our offerings or marketing activities to address this audience could result in lower revenues.
Our business may be sensitive to events affecting the travel industry in general.
Events like the Middle East conflicts, the global financial crisis that began in 2008 or the recent terrorist attacks in France
have a negative impact on the travel industry. We are not in a position to evaluate the net effect of these circumstances on our
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business. In the longer term, our business might be negatively affected by financial pressures on the travel industry. 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 may 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:
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rapidly changing technology in online advertising, including a significant shift of business to mobile
platforms;
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.
If we are unable to timely and successfully develop and introduce new products and enhancements to existing products in
response to our industry’s 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 periods of rapid growth. In order to execute our
business plan, we must continue to grow significantly. 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.
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Intense competition may adversely affect our ability to achieve or maintain market share and operate profitably.
We compete for advertising dollars with large Internet portal sites, such as MSN and Yahoo!, that offer listings or other
advertising opportunities to travel, entertainment and local businesses. These companies have significantly greater financial,
technical, marketing and other resources and larger advertiser bases. We compete with search engines like Google and Bing that
offer pay-per-click listings. We compete with travel metasearch engines like Kayak Software Corp. and online travel and
entertainment deal publishers. We compete with large online travel agencies like Expedia, TripAdvisor, and Priceline that also
offer advertising placements and hotel booking platforms and capture consumer interest. As a result of our acquisition of
Travelzoo Asia Pacific, we now compete or may compete in the future with large online travel service providers, like Ctrip and
eLong. We compete with companies like Groupon and LivingSocial that sell vouchers for deals from local businesses such as
spas, hotels and restaurants. We expect to face increased competition from other Internet and technology-based businesses such
as Google and Microsoft, each of which has launched initiatives which are directly competitive to our Local Deals and
Getaway products. Google has introduced its hotel search product, which negatively impacted our ability to efficiently purchase
Google hotel search traffic to drive our Search product revenues. In addition, we compete for traffic acquisition with many
companies and we are subject to higher prices to acquire this traffic, which drives our Search revenue in particular. We
regularly reduce our traffic acquisition for our Search products if we believe the acquisition costs are too high for us to remain
profitable. When we reduce our traffic acquisition spending it negatively impacts our Search revenue. To the extent that
Google, or other leading search or metasearch engines that have a significant presence in our key markets, offer comprehensive
travel planning or shopping capabilities, or refer those leads to suppliers directly, or to other favored partners, there could be an
adverse impact on our business and financial performance. We also have seen that some competitors will accept lower margins,
or negative margins, to attract attention and acquire new members. If competitors engage in group buying initiatives in which
merchants receive a higher percentage of the face value than we currently offer, we may be forced to pay a higher percentage of
the face value than we currently offer, which may reduce our revenue. 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 advertisers 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.
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. During 2015, there were several changes in
executive management, as further described in previously filed 2015 Form 8-Ks, including the resignation of our CEO, Mr.
Loughlin, who was replaced in January 2016 by Mr. Holger Bartel as Chairman and Global CEO, the resignation of Simon
Talling-Smith who served as President, Products and Emerging Businesses and the promotion of Mr. Stitt to the role of
President, North America.
We may not be able to access third party technology upon which we depend.
We use data 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. Moreover, to
the extent an airline does not provide content to ITA Software or third party data providers, or to us, and we cannot obtain the
content, we may face additional costs (including legal costs) and the financial results of Fly.com could be negatively affected. If
we are unable to continue to display travel data from multiple airline carriers, it would reduce the breadth of our query results
on Fly.com and the number of travelers using our services could decline, resulting in a loss of revenues and a decline in our
operating results. Fly.com depends on access to information related to airline schedules and fares and, to the extent our travel
service providers no longer provide such information, Fly.com’s business and results of operations could be harmed. 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.
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Acquisitions, investments and joint ventures could result in operating difficulties, dilution, and other harmful consequences
that may adversely impact our business and results of operations.
We may evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy,
including business combinations, acquisitions and dispositions of businesses, technologies, services, and other assets, as well as
strategic investments and joint ventures. At any given time we may be engaged in discussions or negotiations with respect to
one or more of these types of transactions. Any of these transactions could be material to our financial condition and results of
operations.
These transactions involve significant challenges and risks. Some of the areas where we may face risks or difficulties
include:
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Diversion of management time and focus from operating our business to acquisition integration challenges.
Implementation or remediation of controls, procedures, and policies at the acquired company.
Integration of the acquired company's accounting, human resources, and other administrative systems, and
coordination of product, engineering, and sales and marketing functions.
Transition of operations, users, and customers onto our existing platforms.
Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed
upon approval, under competition and antitrust laws which could, among other things, delay or prevent us from
completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an
acquisition.
In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to
address the particular economic, currency, political, and regulatory risks associated with specific countries.
Failure to successfully further develop the acquired business or technology.
Cultural challenges associated with integrating employees from the acquired company into our organization, and
retention of employees from the businesses we acquire.
Liability for activities of the acquired company before the acquisition, including patent and trademark infringement
claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities.
Litigation or other claims in connection with the acquired company, including claims from terminated employees,
customers, former stockholders, or other third parties.
Challenges relating to the structure of an investment, such as governance, accountability and decision-making
conflicts that may arise in the context of a joint venture.
Expected and unexpected costs incurred in pursuing acquisitions, including identifying and performing due diligence
on potential acquisition targets that may or may not be successful.
Entrance into markets in which we have no direct prior experience and increased complexity in our business.
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Inability to sell excess assets.
Impairment of goodwill and other assets acquired.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and
investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur
unanticipated liabilities, and harm our business generally.
Future acquisitions may also require us to issue additional equity securities, spend our cash, or incur debt (and
increased interest expense), liabilities and amortization expenses related to intangible assets or write-offs of goodwill,
which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders.
Also, the anticipated benefit of many of our acquisitions may not materialize.
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 March 14, 2016, the closing price of our common stock on the NASDAQ Global Select Market ranged from
$6.71 to $13.96. 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. Our
stock price may be volatile given that operating results may vary from the expectations of securities analysts and investors,
which are beyond our control. In the event that our operating results fall below the expectations of securities analysts or
investors, the trading price of our common shares may decline significantly. Moreover, fluctuations in our stock price and our
price-to-earnings multiple may have made our stock attractive to hedge or day-trading investors who often shift funds into and
out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis.
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 have a principal stockholder.
Ralph Bartel, who founded Travelzoo and who is a Director of the Company is the sole beneficiary of the Ralph Bartel
2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. As of December 31, 2015, Azzurro is the Company's
largest stockholder, holding approximately 51.2% of the Company's outstanding shares.
Risks Related to Legal Uncertainty
We may become subject to shareholder lawsuits over securities violations due to volatile stock price and this can be
burdensome to management and costly to defend.
Shareholder lawsuits for securities violations are often launched against companies whose stock price is volatile. Such
lawsuits involving the Company would require management’s attention to defend, which may distract attention from operating
the Company. In addition, even if the lawsuit is meritless, the Company may incur substantial costs to defend itself and/or settle
such claims, to minimize the distraction and costs of defense. Such lawsuits could result in judgments against the Company
requiring substantial payments to claimants. Such costs may materially impact our results of operations and financial condition.
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,
including those enacted in foreign jurisdictions, 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. For example, new laws and regulations regulating
online advertisements, including those enacted in foreign jurisdictions, may affect our advertising revenue and may also result
in decreased traffic to our websites. 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:
22
•
•
•
•
•
•
•
•
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.
We are subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or
in the aggregate adversely affect the Company’s business.
The Company is subject to laws and regulations affecting its domestic and international operations in a number of
areas. These U.S. and foreign laws and regulations affect the Company’s activities including, but not limited to, in areas of
employment related laws and regulations, advertising, digital content, consumer protection, real estate, billing, e-commerce,
promotions, intellectual property ownership and infringement, tax, anti-corruption, foreign exchange controls and cash
repatriation restrictions, data privacy requirements, anti-competition, health, and safety.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be
inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs,
which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or
in the aggregate make the Company’s services less attractive to the Company’s customers, delay the introduction of new
products in one or more regions, or cause the Company to change or limit its business practices or incur more costs to comply
or defend itself. The Company has implemented policies and procedures designed to ensure compliance with applicable laws
and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws
and regulations or the Company’s policies and procedures.
The implementation of the CARD Act and similar state and foreign laws may harm our Local Deals business.
Vouchers which are issued under our Local Deals and Getaway may be considered gift cards, gift certificates, stored
value cards or prepaid cards and therefore governed by, among other laws, the Credit Card Act of 2009 (the "CARD Act"), and
state laws governing gift cards, stored value cards and coupons. Other foreign jurisdictions have similar laws in place, in
particular European jurisdictions where the European E-Money Directive regulates the business of electronic money
institutions. Many of these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or
prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the
imposition of certain fees. For example, if the vouchers are subject to the CARD Act and are not included in the exemption for
promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the voucher, or the
promotional value, which is the add-on value of the voucher in excess of the price paid, or both, may not expire before the later
of (i) five years after the date on which the voucher was issued; (ii) the voucher’s stated expiration date (if any); or (iii) a later
date provided by applicable state law. Purported class actions against other companies have been filed in federal and state court
claiming that coupons similar to the vouchers are subject to the CARD Act and various state laws governing gift cards and that
the defendants have violated these laws by issuing the coupons with expiration dates and other restrictions. In addition,
investigations by certain state attorney general offices have been launched against other companies with regards to similar
issues. If similar claims are asserted against the Company in respect of the Local Deals and Getaways vouchers and are
successful, we may become subject to fines and penalties and incur additional costs. In addition, if federal or state laws require
that the face value of our vouchers have a minimum expiration period beyond the period desired by a merchant for its
promotional program, or no expiration period, this may affect the willingness of merchants to issue vouchers in jurisdictions
where these laws apply. For unredeemed vouchers, similar laws in other jurisdictions require us or merchants to honor the face
value of vouchers sold, after the redemption period. For example, in Germany, certain consumer protection laws require us to
refund consumers for approximately four years after the purchase date for the amount of the face value of purchased vouchers
which remains unredeemed at the end of the redemption period. Therefore, we do not recognize the unredeemed amounts as
revenue until after we are not subject to these laws. There may be similar laws in other countries or provinces that require
similar practices. Such developments may materially and adversely affect the profitability or viability of our Local Deals and
Getaways.
23
If we are required to materially increase the estimated liability recorded in our financial statements with respect to
unredeemed Local Deals and Getaways vouchers due to application of certain gift card laws, our net income could be
materially and adversely affected.
In certain states and foreign jurisdictions, our Local Deals and Getaway vouchers may be considered a gift card. Some of
these states and foreign jurisdictions include gift cards under their unclaimed and abandoned property laws which require
companies to remit to the government the value of the unredeemed balance on the gift cards after a specified period of time
(generally between one and five years) and impose certain reporting and recordkeeping obligations. The analysis of the
potential application of the unclaimed and abandoned property laws to our vouchers is complex, involving an analysis of
constitutional and statutory provisions and factual issues, including our relationship with members and merchants and our role
as it relates to the issuance and delivery of a voucher. In the event that one or more states or foreign jurisdictions successfully
challenges our position on the application of its unclaimed and abandoned property laws to vouchers, or if the estimates that we
use in projecting the likelihood of vouchers being redeemed prove to be inaccurate, our liabilities with respect to unredeemed
vouchers may be materially higher than the amounts shown in our financial statements. If we are required to materially increase
the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net income could be
materially and adversely affected. Moreover, a successful challenge to our position could subject us to penalties or interest on
unreported and unremitted sums, and any such penalties or interest would have a further material adverse impact on our net
income.
New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use of our services and
our financial results.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to regulate our
transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and
local levels are currently reviewing the appropriate treatment of companies engaged in Internet commerce. New or revised
international, federal, state or local tax regulations may subject us or our members to additional sales, income and other taxes.
We cannot predict the effect of current attempts to impose sales, income or other taxes on commerce over the Internet. New or
revised taxes and, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and
decrease the attractiveness of advertising and selling goods and services over the Internet. New taxes could also create
significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of these events could have an
adverse effect on our business and results of operations.
We may suffer liability as a result of information retrieved from or transmitted over the Internet and claims related to our
service offerings.
We may be sued for defamation, civil rights infringement, negligence, patent, copyright or trademark infringement,
invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other
legal claims relating to information that is published or made available on our websites or service offerings we make available
(including provision of an application programming interface platform for third parties to access our website, mobile device
services and geolocation applications). These types of claims have been brought, sometimes successfully, against online
services in the past. The fact that we distribute information via e-mail or text message 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 or mobile service. These risks are enhanced in certain jurisdictions
outside the U.S., where our liability for such third-party actions may be less clear and we may be less protected. In addition, we
could incur significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of
these events occurs, our business could be materially and adversely affected.
We are subject to risks associated with information disseminated through our websites and applications, including
consumer data, content that is produced by our editorial staff and errors or omissions related to our product offerings. Such
information, whether accurate or inaccurate, may result in our being sued by our advertisers, merchants, members or third
parties and as a result our revenue and reputation could be materially and adversely affected.
24
In addition, we may acquire personal or confidential information, including credit card information, from users of our
websites and mobile applications, related to our Local Deals, Getaway and planned hotel booking platform. Our existing
security measures may not be successful in preventing security breaches. For example, outside parties may attempt to
fraudulently induce employees, merchants or customers to disclose sensitive information in order to gain access to our secure
systems and networks. A party (whether internal, external, an affiliate or unrelated third party) that is able to circumvent our
security systems could steal consumer information or transaction data or other proprietary information. In the last few years,
several major companies, such as Target, have experienced high-profile security breaches that exposed their customers'
personal information. While we strive to use commercially acceptable means to protect customer personal information, no
method of transmission over the Internet, or method of electronic storage, is 100% secure. Further, because the techniques used
to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized
until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative
measures. Security breaches or the unauthorized disclosure of customer personal information could result in negative publicity,
damage our reputation, expose us to risk of loss or litigation and possible liability and subject us to regulatory penalties and
sanctions. Any failure or perceived failure by us, or our service providers, to comply with the privacy policies, privacy-related
obligations to users or other third parties, or privacy related legal obligations, or any compromise of security that results in the
unauthorized release or transfer of personally identifiable information or other user data, may result in governmental
enforcement actions, litigation or public statements against the company by consumer advocacy groups or others and could
cause our customers and members to lose trust in the Company, which could have an adverse effect on our business. If our
security measures are breached, or if our services are subject to attacks that degrade or deny the ability of users to access our
products and services, our products and services may be perceived as not being secure, users and customers may curtail or stop
using our products and services, and we may incur significant legal and financial exposure.
We could also be adversely affected if legislation or regulations are expanded to require changes in our business practices
or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business,
results of operations or financial condition. For example, we, like many online companies, have been utilizing the U.S.- E.U.
Safe Harbor framework and relying on this method to ensure the appropriate transfer of data between the U.S. and Europe.
However, on October 6, 2015, the European Court of Justice ruled that this 15-year old Safe Harbor pact is no longer valid.
While we are evaluating and implementing alternatives, it is difficult at this point to know whether this ruling will have an
impact on our business. To the extent that European regulatory authorities impose fines on the Company or require changes to
the Company's business practices, the Company's business and results of operations could be materially and adversely affected.
We also could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if
governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results
of operations or financial condition.
Claims have been asserted against us relating to shares not issued in our 2002 merger.
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal
stockholder, Ralph Bartel. In 2002, Travelzoo.com Corporation was merged into Travelzoo Inc. Under and subject to the terms
of the merger agreement, holders of promotional shares of Travelzoo.com Corporation (“Netsurfers”) who established that they
had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to
receive one share of Travelzoo Inc. in exchange for each share of common stock of Travelzoo.com Corporation. In 2004, two
years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange
these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a
voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfer
promotional shares as further described below.
Beginning in 2010, the Company became subject to unclaimed property audits of various states in the United States
related to the above unexchanged promotional shares. The Company recorded charges for the estimated settlements with these
states of $20.0 million , $3.0 million and $22.0 million in 2011, 2012 and 2013, respectively. In 2014, the Company released
$7.6 million of the reserve related to the completion of settlements with the states.
25
Although the Company has settled the states unclaimed property claims with all states, the Company may still receive
inquiries from certain potential Netsurfer promotional stockholders that had not provided their state of residence to the
Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments
to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who
establish that they satisfy the original conditions required for them to receive shares of Travelzoo.com Corporation, and who
failed to submit requests to convert their shares into shares of Travelzoo Inc. within the required time period. This voluntary
program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those
individuals for which their residence was unknown to the Company. The accompanying consolidated financial statements
include a charge for payments under this voluntary program in general and administrative expenses of $1,000 for the year
ended December 31, 2015.
The total cost of this voluntary program is not reliably estimable because it is based on the ultimate number of valid
requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the
potential 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. In
order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in
Travelzoo.com Corporation.
Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar foreign laws, could be
expanded to include Local Deals and Getaways vouchers.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as
the European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist
financing, impose certain anti-money laundering requirements on companies that are financial institutions or that provide
financial products and services. For these purposes, financial institutions are broadly defined to include money services
businesses such as money transmitters, check cashers and providers of prepaid access cards. Examples of anti-money
laundering requirements imposed on financial institutions include customer identification and verification programs, suspicious
activity monitoring and reporting, record retention policies and procedures and transaction reporting. We do not believe that we
are a financial institution subject to these laws and regulations based, in part, upon the closed loop nature and other
characteristics of vouchers and our role with respect to the distribution of vouchers to members. However, the Financial Crimes
Enforcement Network, a division of the U.S. Department of the Treasury tasked with implementing the requirements of the
Bank Secrecy Act, recently issued final rules regarding the scope and requirements for non-bank parties involved in stored
value or prepaid access cards, including obligations on sellers or providers of “prepaid access”. Under the final rule, providers
or sellers of closed loop vouchers, such as those offered through the Local Deals and Getaways program, would only be subject
to registration if the voucher exceed $2,000 in total value or if they are sold in aggregate amounts exceeding $10,000 to any
single person in one day. Should the $2,000 limit be exceeded or should more than $10,000 in aggregate vouchers be sold to
any individual person (sales to businesses for resale or distribution are excluded) then we may be deemed either a seller or
provider of prepaid access subject to regulation. In the event that we become subject to the requirements of the Bank Secrecy
Act or any other anti-money laundering law or regulation imposing obligations on us as a money services business, our
regulatory compliance costs to meet these obligations would likely increase which could reduce our net income. In addition, the
costs for third parties to sell vouchers would increase, which may restrict our ability to enlist third parties to issue vouchers.
Our internal control 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 control over financial reporting in order to allow management to report on, and
our independent auditors to opine on, our internal control 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. In addition, the changes in our internal controls related to the Asia Pacific business, which we acquired in
August 2015, are subject to an allowed first-year exemption for acquired businesses. 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.
26
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, as well as 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 always
succeed in deterring misappropriation of proprietary information.
We have registered the Travelzoo trademark in the U.S., Australia, Canada, China, Hong Kong, Japan, South Korea,
Taiwan, the European Union 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 always 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
management’s 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. 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. We endeavor to defend our intellectual property rights diligently, but
intellectual property litigation is extremely expensive and time consuming, and has and is likely to continue to divert
managerial attention and resources from our business objectives. Successful infringement claims against us could result in
monetary liability and resolution of claims may require us to obtain licenses to use intellectual property rights belonging to
third parties, which may be expensive to procure.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in New York, New York, where we occupy approximately 13,500 square feet of leased office
space. We have leased offices in Asia Pacific for operations in China, Australia, Hong Kong, Singapore, Japan, and Taiwan,
including offices in Beijing, Guangzhou, Hong Kong, Shanghai, Singapore, Sydney, Taipei, and Tokyo. We also have leased
offices for our Europe operations in France, Germany, Spain, and the U.K., including offices in Barcelona, Berlin, Hamburg,
London, Manchester, Munich, and Paris. In addition to our New York office, we have several leased offices throughout the
U.S. and Canada for our North America operations, including offices in Chicago, Illinois; Austin, Texas; Los Angeles,
California; Miami, Florida; Mountain View, California; San Diego, California; San Francisco, California; Toronto, Ontario; and
Vancouver, British Columbia.
We believe that our leased facilities are adequate to meet our current needs; however, we intend to expand our operations
and therefore may require additional facilities in the future. We believe that such additional facilities are available.
Item 3. Legal Proceedings
The information set forth under “Note 5 - Commitments and Contingencies” to the accompanying consolidated financial
statements included in Part II, Item 8 of this report is incorporated herein by reference.
Item 4. Mine Safety Disclosure
Not applicable.
27
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Since August 18, 2004, our common stock has been trading on the NASDAQ Global Select Market under the symbol
“TZOO.” The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock
as reported by NASDAQ.
2015:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$10.10
$12.53
$13.96
$12.16
$15.86
$19.60
$23.48
$24.75
$7.65
$8.07
$9.39
$8.58
$12.17
$15.50
$17.09
$20.91
On March 14, 2016, the last reported sales price of our common stock on the NASDAQ Global Select Market was $8.16
per share.
As of March 14, 2016, there were approximately 194 stockholders of record of our shares.
Dividend Policy
Travelzoo has not declared or paid any cash dividends since inception and does not expect to pay cash dividends for the
foreseeable future. The payment of dividends will be at the discretion of our board of directors and will depend upon factors
such as future earnings, capital requirements, our financial condition and general business conditions.
Sales of Unregistered Securities
There were no unregistered sales of equity securities during fiscal year 2015.
28
Repurchases of Equity Securities
We repurchased 212,000 shares of our equity securities during the three months ended December 31, 2015.
Period
October 1, 2015 - October 31, 2015
November 1, 2015 - November 30, 2015
December 1, 2015 - December 31, 2015
Total Number of
Shares
Purchased
Average Price
Paid
per Share
—
— $
212,000
$
212,000
—
—
8.49
Total Number of
Shares
Purchased
as Part of
Publicly
Announced
Programs
—
—
212,000
212,000
Maximum Shares
that May Yet
be Purchased Under
the Programs (1)
268,000
268,000
56,000
(1) In July 2012, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares
of the Company’s outstanding common stock. As of December 31, 2013, 971,000 shares were repurchased and therefore
there were 29,000 shares remaining to be repurchased under this program. In January 2014, the Company announced a
stock repurchase program authorizing the repurchase of up to 500,000 shares of the Company’s outstanding common
stock. During the year ended December 31, 2014, the Company repurchased 261,000 shares of common stock, and
therefore there were 268,000 shares remaining to be repurchased under this program as of December 31, 2014. During
the three months ended December 31, 2015, the Company repurchased 212,000 shares of common stock and therefore
there were 56,000 shares remaining to be repurchased under this program as of December 31, 2015. In February 2016,
the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares of the
Company’s outstanding common stock.
29
Performance Graph
The following graph compares, for the dates specified, the cumulative total stockholder return for Travelzoo, the
NASDAQ Stock Market (U.S. companies) Index (the “NASDAQ Market Index”), and the Standard & Poor's 500 Publishing
Index (the “S&P 500 Publishing”). Measurement points are the last trading day of each of the Company's fiscal years ended
December 31, 2010, December 31, 2012, December 31, 2013, December 31, 2014, and December 31, 2015. The graph assumes
that $100 was invested on December 31, 2010 in the Common Stock of the Company, the NASDAQ Market Index and the S&P
500 Publishing and assumes reinvestment of any dividends. The stock price performance on the following graph is not
indicative of future stock price performance.
Measurement Point
Travelzoo Inc.
NASDAQ Market Index
S&P 500 Publishing
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
$
$
$
100 $
100 $
100 $
59.40 $
45.89 $
51.52 $
30.50 $
98.20 $
113.82 $
157.44 $
178.53 $
111.22 $
139.51 $
224.61 $
215.61 $
20.23
188.75
203.64
30
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth below for the years ended December 31, 2015, 2014 and 2013 are
derived from our audited consolidated financial statements. The selected consolidated financial data set forth below for the
years ended December 31, 2012 and 2011 represent unaudited consolidated financial statements presented on a basis consistent
with those for years ended December 31, 2015, 2014 and 2013. The financial results for Travelzoo Inc. have been
retrospectively adjusted to include the financial results of Asia Pacific in the current and prior periods as though the transaction
occurred at the beginning of each period presented. See Note 13 to the accompanying consolidated financial statements for
further information related to the acquisition of the Travelzoo Asia Pacific business. The following selected consolidated
financial data is qualified in its entirety by, and should be read in conjunction with, “Management's Discussion and Analysis of
Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included
elsewhere herein.
Consolidated Statement of Operations Data:
Revenues
Income from operations
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Shares used in per share calculation - basic
Shares used in per share calculation - diluted
Year Ended December 31,
2015
2014
2013
2012
2011
(In thousands, except per share data)
$
$
$
$
$
$
$
$
$
$
141,716
7,146
10,864
0.74
0.74
14,722
14,722
$
$
$
$
$
153,240
17,810
13,062
0.88
0.88
14,768
14,809
170,633
$
162,159
1,161
$
(6,582) $
(0.43) $
(0.43) $
15,269
15,269
21,843
14,456
0.91
0.91
15,866
15,901
$
$
$
$
$
156,032
10,256
(1,390)
(0.09)
(0.09)
16,315
16,315
Consolidated Balance Sheet Data:
2015
2014
2013
2012
2011
Year Ended December 31,
(In thousands)
$
$
$
$
35,128
16,046
68,579
21,387
$
$
$
$
55,417
36,259
93,307
35,827
$
$
$
$
68,668
29,194
119,440
30,096
$
$
$
$
65,005
42,358
103,722
43,583
$
$
$
$
40,909
28,824
72,128
35,730
Cash and cash equivalents
Working capital
Total assets
Stockholders' equity
31
Item 7. Management’s 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. Travelzoo’s 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.
32
Overview
Travelzoo Inc. (the “Company”, or “Travelzoo”) is a global media commerce company. We inform over 28 million
members in Asia Pacific, Europe and North America, 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 Travelzoo’s rigorous quality standards. We provide travel, entertainment and local
businesses 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 (travelzoo.com, travelzoo.ca, travelzoo.co.uk, travelzoo.de,
travelzoo.es, travelzoo.fr, cn.travelzoo.com, travelzoo.co.jp, travelzoo.com.au, travelzoo.com.hk, travelzoo.com.tw, 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.
Our Travelzoo websites include our Local Deals and Getaway listings that allow our members to purchase vouchers for deals
from local businesses such as spas, hotels and restaurants. We receive a percentage of the face value of the voucher from the
local businesses. 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.
On August 20, 2015 we acquired the Travelzoo Asia Pacific business (“Asia Pacific”), which includes the Travelzoo
businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently operated by
Azzurro Capital Inc. ("Azzurro"), under a licensing agreement with Travelzoo Inc. Azzurro was the majority stockholder of the
Travelzoo Asia Pacific business. Travelzoo Inc. accounted for this transaction as a common control transaction and change in
reporting entity. The financial results for Travelzoo Inc. have been retrospectively adjusted to include the financial results of
Asia Pacific in the current and prior periods as though the transaction occurred at the beginning of the each period presented.
The Asia Pacific assets and liabilities have been combined with Travelzoo Inc. at their carrying values as though the transaction
occurred at the beginning of each period presented. The Asia Pacific transaction proceeds were reflected as an equity
transaction, included in retained earnings, during the period the transaction occurred, which was in the year ended
December 31, 2015. See Note 13 to the accompanying consolidated financial statements for further information on the
acquisition of Asia Pacific.
Certain prior period statement of operations amounts have been reclassified to conform to the current period presentation
primarily due to the Company's allocation of facilities costs to all of its operating activities and separate disclosure of product
development costs. See Note 1 to the accompanying unaudited condensed consolidated financial statements for further
information.
More than 2,000 companies use our services, including Air New Zealand, Apple Vacation, British Airways, Cathay
Pacific Airways, Expedia, Fairmont Hotels and Resorts, Hawaiian Airlines, InterContinental Hotels Group, Interstate Hotel &
Resorts, Lufthansa, Key Tours International, Liberty Travel, Princess Cruises, Singapore Airlines, Solar Tours, Starwood
Hotels & Resorts Worldwide, Travelocity, United Airlines, Vacation Express and Virgin Atlantic.
We have three operating segments based on geographic regions: Asia Pacific, Europe and North America. Asia Pacific
consists of our operations in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. Europe consists of our
operations in France, Germany, Spain, and the U.K. North America consists of our operations in Canada and the U.S. For the
year ended December 31, 2015, Asia Pacific operations were 8% and European operations were 30% of revenues, respectively.
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.
When evaluating the financial condition and operating performance of the Company, management focuses on financial
and non-financial indicators such as growth in the number of members to the Company’s newsletters, operating margin, growth
in revenues in the absolute and relative to the growth in reach of the Company’s publications measured as revenue per member
and revenue per employee as a measure of productivity.
How We Generate Revenues
Our revenues are advertising revenues, consisting primarily of listing fees paid by travel, entertainment and local
businesses to advertise their offers on Travelzoo’s media properties. Listing fees are based on audience reach, placement,
number of listings, number of impressions, number of clicks, number of referrals, or percentage of the face value of vouchers
sold. Insertion orders are typically for periods between one month and twelve months and are not automatically renewed.
Merchant agreements for Local Deals and Getaway advertisers are typically for twelve months and are not automatically
renewed. We have three separate groups of our advertising products: Travel, Search and Local.
33
Our Travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies,
such as hotels, airlines, cruises or car rentals and includes products such as Top 20, Website, Newsflash, Travelzoo Network as
well as Getaway vouchers. The revenues generated from these products are based upon a fee for number of e-mails delivered to
our audience, a fee for clicks delivered to the advertisers, a fee for placement of the advertising on our website or a fee based
on a percentage of the face value of vouchers sold, hotel booking stays or other items sold. We recognize revenue upon delivery
of the e-mails, delivery of the clicks, over the period of placement of the advertising, upon hotel booking stays and upon the
sale of the vouchers or other items sold.
Our Search category of revenue includes comparison shopping tools for consumers to quickly and easily compare
airfares, hotel and car rental prices and includes SuperSearch and Fly.com products. The revenues generated from these
products are based upon a fee for clicks delivered to the advertisers or a fee for clicks delivered to advertisers that resulted in
revenue for advertisers (i.e. successful clicks). We recognize revenue upon delivery of the clicks or successful clicks.
Our Local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses,
such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and
direct bookings). The revenues generated from these products are based upon a percentage of the face value of vouchers or
items sold or a fee for clicks delivered to the advertisers. We recognize revenue upon the sale of the vouchers, when we receive
notification of the direct bookings or upon delivery of the clicks. The Company earns a fee for acting as an agent in these
transactions, which is recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant
contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon
expiration, which we recognize as revenue after the expiration of the redemption period and after there are no further
obligations to provide funds to merchants, members or others.
Trends in Our Business
Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to
existing and new advertisers, our ability to increase our audience reach and advertising rates, our ability to have sufficient
supply of hotels offered at competitive rates, and our ability to develop and launch new products.
Our current revenue model primarily depends on advertising fees paid primarily by travel, entertainment and local
businesses. A number of factors can influence whether current and new advertisers decide to advertise their offers with us. We
have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online
advertising, the relative condition of the economy, competition and the introduction of new methods of advertising, and the
decline in consumer demand for vouchers. The introduction of competing services and changing search algorithms by search
engines such as Google, Yahoo! and Microsoft which may reduce the level or quality of Internet traffic to our services, in
particular our Search products, SuperSearch and Fly.com, the competitive market pricing of voucher-based offerings may lead
to us reducing our take rate (i.e., our commission) in order to maintain or grow the number of quality deals and merchants we
are seeking. For example, the consolidation of the airline industry reduced our revenues generated from this sector, the
reduction of capacity in the airline industry reduced demand to advertise for excess capacity, and the introduction of new
voucher-based products offered by competitors impacted our ability to sell our existing advertising products. A number of
factors will have impact on our revenue, such as the reduction in spending by travel intermediaries due to their focus on
improving profitability, the trend towards mobile usage by consumers, the willingness of consumers to purchase the deals we
advertise, and the willingness of certain competitors to grow their business unprofitably. In addition, we have been impacted
and expect to continue to be impacted by internal factors such as introduction of new advertising products, hiring and relying
on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to
attract the audience that advertisers desire. In response to declining Search product revenue, which includes SuperSearch and
Fly.com products, the Company is continuously reviewing the performance of these products, which has and will result in
reduced traffic acquisition spend for these products and may result in merging the products, discontinuing or replacing one or
both of them. Challenges with traffic acquisition from search engines and poor monetization on mobile devices have led to
continued declines in Search revenue. Given these factors impacting our Search products, revenue from our Search products are
expected to decline.
Existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals and Getaway).
These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous
periods depending on the amount purchased by the advertisers, and in particular, with Local Deals and Getaway, depending on
how many vouchers are purchased by members. In addition, we are anticipating a shift from our existing hotel revenue to
commission-based hotel revenue as we expand the use of our hotel platform, which may result in lower revenue depending on
volume of hotel bookings.
34
Local revenues have been and may continue to decline over time due to market conditions driven by competition and
declines in consumer demand. In the last several years, we have seen a decline in the number of vouchers sold and a decrease in
the average take rate earned by us from the merchants for voucher sold.
Our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an
attractive audience for our publications. We monitor our members to assess our efforts to maintain and grow our audience
reach. We obtain additional members and activity on our websites by acquiring traffic from Internet search companies. The
costs to grow our audience have had, and we expect will to continue to have, a significant impact on our financial results and
can vary from period to period. We may have to increase our expenditures on acquiring traffic to continue to grow or maintain
our reach of our publications due to competition. We continue to see a shift in the audience to accessing our services through
mobile devices and social media. We are addressing this growing channel of our audience through development of our mobile
applications and through marketing on social media channels. However, we will need to keep pace with technological change
and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue.
We believe that we can increase our advertising rates only if the reach of our publications increases. We do not know if
we will be able to increase the reach of our publications. If we are able to increase the reach of our publications, we still may
not be able to or want to increase rates given market conditions such as intense competition in our industry. We have not had
any significant rate increase in recent years due to intense competition in our industry. Even if we increase our rates, the
increased price may reduce the amount of advertisers willing to advertise with us and, therefore, decrease our revenue. We may
need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or
grow our revenue.
We do not know what our cost of revenues as a percentage of revenues will be in future periods. Our cost of revenues will
increase if the number of searches performed on Fly.com increases because we pay a fee based on the number of searches
performed on Fly.com. Our cost of revenues may increase if the face value of vouchers that we sell for Local Deals and
Getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of
vouchers sold, due to customer service costs related to vouchers sold and due to member refunds on vouchers sold. Our cost of
revenues are expected to increase due to our effort to develop our hotel booking platform as well. We expect fluctuations in cost
of revenues 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 sales and marketing expenses as a percentage of revenue will be in future periods. Increased
competition in our industry may require us to increase advertising for our brand and for our products. In order to increase the
reach of our publications, we have to acquire a significant number of new members 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 member.
Increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a
percentage of revenue. 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 member acquisition efforts successfully, the regions we choose to acquire new
members and the relative costs for that region, and the degree of competition in our industry. We may decide to accelerate our
member acquisition for various strategic and tactical reasons and, as a result, increase our marketing expenses. We expect the
average cost per acquisition to increase with our increased expectations for the quality of the members we acquire. We may see
an unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses. In addition, there
may be a significant number of members that cancel or we may cancel their subscription for various reasons, which may drive
us to spend more on member acquisition in order to replace the lost members. Further, we expect to continue our strategy over
time to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing
expenses and have a material adverse impact on our results of operations. For example, we recently acquired our Asia Pacific
business, which we intend on increasing our investment in audience in this region. Due to the continued desire to grow our
business in Asia Pacific, Europe and North America, we expect relatively high level of sales and marketing expenses in the
foreseeable future. We expect fluctuations in sales and marketing expenses as a percentage of revenue from year to year and
from quarter to quarter. Some of the fluctuations may be significant and have a material impact on our results of operations. We
expect increased marketing expense to spur continued growth in members and revenue in future periods; however, we cannot
be assured of this due to the many factors that impact our growth in members and revenue. We expect to adjust the level of such
incremental spending during any given quarter based upon market conditions as well as our performance in each quarter. We
have increased and may continue to increase our spending on sales and marketing to increase the number of our members and
address the growing audience from mobile and social media channels, as well as to increase our analytic capabilities to
continuously improve the presentation of our offerings to our audience.
We do not know what our product development expenses as a percentage of revenue will be in future periods. There may
be fluctuations that have a material impact on our results of operations. Product development changes may lead to reductions of
revenue based on changes in the presentation of our offerings to our audience. We expect our efforts on developing our product
35
and services will continue to be focus in the future, which may lead to increased product development expenses. This increase
in expense may be the result of an increase in headcount, the compensation related to existing headcount and the increased use
of professional services. We expect our continued expansion into foreign markets and development of new advertising formats
to result in a significant additional increase in our product development expenses. We expect to incur additional costs related to
the development of our hotel platform capabilities, which we are developing, in part, to address the shift to mobile devices. We
also may increase our investment in product development to ensure our products are suited for different regions such as Asia
Pacific. In addition, we expect to incur additional costs related to the development of our search capabilities of our website and
mobile applications.
We do not know what our general and administrative expenses as a percentage of revenue 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 Company’s 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. We expect our continued expansion into foreign
markets to result in an increase in our general and administrative expenses. Our general and administrative expenses as a
percentage of revenue 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, whose claims were not escheated to states and who failed to submit requests to convert shares into Travelzoo Inc.
within the required time period. We expect an increase in professional fees for various initiatives.
We do not know what our income taxes will be in future periods. There may be fluctuations that have a material impact
on our results of operations. Our income taxes are dependent on numerous factors such as the geographic mix of our taxable
income, federal and state and foreign country tax law and regulations and changes thereto, the determination of whether
valuation allowances for certain tax assets are required or not, audits of prior years' tax returns resulting in adjustments,
resolution of uncertain tax positions and different treatment for certain items for tax versus books such as the disposition of our
Asia Pacific business in 2009 and the acquisition of our Asia Pacific business in 2015. We expect fluctuations in our income
taxes from year to year and from quarter to quarter. Some of the fluctuations may be significant and have a material impact on
our results of operations.
The key elements of our growth strategy include building a travel and lifestyle brand with a large, high-quality user base
and offering our users products that keep pace with consumer preference and technology, such as the trend toward mobile usage
by consumers. We expect to continue our efforts to grow; however, we may not grow or we may experience slower growth.
Some examples of our efforts to expand our business internationally since our inception in the U.S. have been expansion to the
U.K. in 2005, Canada in 2006, Germany in 2006, France in 2007, Spain in 2008. In addition, from 2007 through 2009 we
began operations in Asia Pacific, including in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. We also have
launched new products to grow our revenue such as the introduction of Fly.com in 2009, Local Deals in 2010, Getaway in 2011
as well as our mobile application launches in 2011 and 2012. In late 2012, we bought an online hotel platform to assist in our
development of a product to better serve hotels and to facilitate the development of our hotel platform. We have also increased
our spending on addressing the shift of our audience to mobile devices and social media.
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 advertising continues to shift from offline to online. We
do not know if we will be able to maintain or increase our market share. We do not know if we will be able to increase the
number of our advertisers in the future. We do not know if we will have market acceptance of our new products or whether the
market will continue to accept our existing products.
36
Results of Operations
The following table sets forth, as a percentage of total revenues, the results from our operations for the periods indicated.
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Product development
General and administrative
Unexchanged promotional shares
Total operating expenses
Income from operations
Other income (loss)
Income before income taxes
Income taxes
Net income (loss)
Year Ended December 31,
2015
2014
2013
100.0%
100.0%
100.0 %
13.3
86.7
55.8
8.8
17.1
—
81.7
5.0
(0.9)
4.1
(3.5)
7.6%
12.5
87.5
54.5
7.4
18.9
(4.9)
75.9
11.6
0.1
11.7
3.2
10.8
89.2
53.1
5.2
17.3
12.9
88.5
0.7
—
0.7
4.5
8.5%
(3.8)%
37
Operating Metrics
The following table sets forth operating metrics in Asia Pacific, Europe and North America:
Asia Pacific
Total members
Average cost per acquisition of a new member
Revenue per member (2)
Revenue per employee (3)
Mobile application downloads
Social media followers
Europe
Total members
Average cost per acquisition of a new member
Revenue per member (2)
Revenue per employee (3)
Mobile application downloads
Social media followers
North America
Total members
Average cost per acquisition of a new member
Revenue per member (2)
Revenue per employee (3)
Mobile application downloads
Social media followers
Consolidated
Total members (1)
Average cost per acquisition of a new member
Revenue per member (2)
Revenue per employee (3)
Mobile application downloads
Social media followers
Years Ended December 31,
2015
2014
2013
3,484,000
2.46
3.02
114
563,000
383,000
$
$
$
3,533,000
0.64
3.08
92
355,000
366,000
$
$
$
3,598,000
0.50
3.29
112
329,000
353,000
7,860,000
7,347,000
6,768,000
3.43
5.73
287
1,419,000
595,000
$
$
$
3.53
6.93
297
1,192,000
494,000
$
$
$
2.19
7.26
299
814,000
393,000
17,184,000
2.16
5.28
383
2,734,000
2,250,000
16,843,000
2.09
$
5.77
$
340
$
2,312,000
1,809,000
$
$
$
16,506,000
1.41
6.96
398
1,653,000
1,483,000
28,390,000
27,667,000
26,821,000
2.62
5.12
300
$
$
$
2.55
5.71
275
$
$
$
1.58
6.56
314
4,716,000
3,228,000
3,859,000
2,669,000
2,796,000
2,229,000
$
$
$
$
$
$
$
$
$
$
$
$
(1) Members represent individuals who are signed up to receive one or more of our free email publications that present our
travel, entertainment and local deals.
(2)
(3)
Annual revenue divided by number of members at the beginning of the year.
Annual revenue divided by number of employees at the end of the year.
38
Revenues
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue
includes travel publications (Top 20, Website, Newsflash, Travelzoo Network), Getaway vouchers and hotel booking platform.
Search revenue includes SuperSearch and Fly.com. Local revenue includes Local Deals vouchers and entertainment offers
(vouchers and direct bookings).
Asia Pacific
Travel
Search
Local
Total Asia Pacific revenues
Europe
Travel
Search
Local
Total Europe revenues
North America
Travel
Search
Local
Total North America revenues
Consolidated
Travel
Search
Local
Total revenues
Asia Pacific
Year Ended December 31,
2015
2014
2013
9,355
$
9,308
$
34
1,294
10,683
33,603
2,396
6,133
42,132
56,054
15,427
17,420
88,901
99,012
17,857
24,847
$
$
$
$
$
$
100
1,667
11,075
35,847
3,009
7,119
45,975
59,104
15,888
21,198
96,190
104,259
18,997
29,984
$
$
$
$
$
$
9,788
230
2,055
12,073
34,112
3,539
8,388
46,039
63,534
21,548
27,439
112,521
107,434
25,317
37,882
141,716
$
153,240
$
170,633
$
$
$
$
$
$
$
$
Asia Pacific revenues decreased $392,000 or 4% in 2015 compared to 2014. This decrease was primarily due to a
$758,000 negative impact from foreign currency movements relative to the U.S. dollar and the decrease in Local revenues
offset by the increase in Travel revenues. The decrease in Local revenues of $285,000 was primarily due to the decreased
number of Local Deals vouchers sold. The increase in Travel revenues of $700,000 was primarily due to the increased number
of e-mails sent.
Asia Pacific revenues decreased $1.0 million or 8% in 2014 compared to 2013. This decrease was primarily due to a
$481,000 negative impact from foreign currency movements relative to the U.S. dollar and a decrease in Local revenues. The
decrease in Local revenues of $341,000 was primarily due to the decreased number of Local Deals vouchers sold.
Europe
Europe revenues decreased $3.8 million or 8% in 2015 compared to 2014. This decrease was primarily due to the $4.9
million negative impact from foreign currency movements relative to the U.S. dollar and the decrease in Local revenues offset
by the increase in Travel revenues. The decrease in Local revenues of $371,000 was primarily due to the decreased number of
Local Deals vouchers sold. The increase in Travel revenue of $1.7 million was primarily due to the increased number of emails
sent and paid clicks.
39
Europe revenues decreased $64,000 or 0.1% in 2014 compared to 2013. This decrease was primarily due to a decrease in
Local and Search revenues offset by an increase in Travel revenues and a $1.7 million positive impact from foreign currency
movements relative to the U.S. dollar. The decrease in Local revenues of $1.6 million was primarily due to the decreased
number of Local Deals vouchers sold. The decrease in Search revenue of $711,000 was primarily due to the decreased number
of clicks that generate revenue as a result of decreased spending on traffic acquisition. The increase in Travel revenues of
$597,000 was primarily due to an increase in revenues from travel publications due to an increased number of e-mails
delivered.
North America
North America revenues decreased $7.3 million or 8% in 2015 compared to 2014. This decrease was primarily due to the
decrease in Local and Travel revenues. The decrease in Local revenues of $3.8 million was primarily due to the decreased
number of Local Deals vouchers sold. The decrease in Travel revenue of $3.1 million was primarily due to the decreased
number of Getaway vouchers sold and paid clicks. The North America revenue decrease includes a $871,000 negative impact
from foreign currency movement relative to the U.S. dollar.
North America revenues decreased $16.3 million or 15% in 2014 compared to 2013. This decrease was primarily due to
the decrease in Local, Search and Travel revenues. The decrease in Local revenues of $6.2 million was primarily due to the
decreased number of Local Deals vouchers sold. The decrease in Search revenue of $5.7 million was primarily due to the
decreased number of clicks that generate revenue as a result of decreased spending on traffic acquisition. The decrease in
Travel revenue of $4.4 million was primarily due to the decreased number of Getaway vouchers sold and paid clicks. The
North America revenue decrease includes a $541,000 negative impact from foreign currency movement relative to the U.S.
dollar.
For 2015, 2014 and 2013, none of our customers accounted for 10% or more of our revenue.
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, credit card fees, certain estimated member
refunds and customer service costs associated with vouchers we sell and hotel bookings, and salary expenses associated with
network operations and customer service staff. Cost of revenues was $18.8 million, $19.2 million and $18.5 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
Cost of revenue decreased $350,000 in 2015 compared to 2014. This decrease was primarily due to a $892,000 decrease
in Local Deals and Getaway costs including a $335,000 decrease in member refunds, a $217,000 decrease in fees we paid
related to user searches on Fly.com offset by a $830,000 increase in payments made to third-party partners of the Travelzoo
Network.
Cost of revenue increased $697,000 in 2014 compared to 2013. This increase was primarily due to a $685,000 increase in
payments made to third-party partners of the Travelzoo Network, a $434,000 increase in salary and employee related expenses
due to headcount increase for hotel booking platform customer service, a $200,000 increase in professional service expenses
offset by a $827,000 decrease in fees we paid related to user searches on Fly.com.
40
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 were $79.0 million, $83.5 million and $90.6 million for 2015, 2014 and 2013,
respectively. Advertising expenses accounted for 33%, 26% and 29%, respectively, of total sales and marketing expenses and
consisted primarily of online advertising, which we refer to as traffic acquisition cost and member acquisition costs. The goal of
our advertising was to acquire new members for our e-mail products, increase the traffic to our websites and increase brand
awareness.
Sales and marketing expenses decreased $4.5 million in 2015 compared to 2014. The decrease was primarily due to a
$4.6 million decrease in salary and employee related expenses due in part to a decrease in headcount, a $1.0 million planned
decrease in Search traffic acquisition costs offset by a $1.7 million increase in member acquisition costs. The increase in
member acquisition cost was intended to drive future growth, increase the reach of our audience, both in terms of the size of
our audience and from growing sources such as mobile devices and social media.
Sales and marketing expenses decreased $7.1 million in 2014 compared to 2013. The decrease was primarily due to a
$7.2 million planned decrease in Search traffic acquisition costs and a $3.4 million decrease in salary and employee related
expenses offset by a $2.3 million increase in member acquisition cost. The increase in member acquisition cost was intended to
drive future growth, increase the reach of our audience, both in terms of the size of our audience and from growing sources
such as mobile devices and social media.
Product Development
Product development expenses consist primarily of compensation for software development staff, fees for professional
services, software maintenance and amortization and facilities costs. Product development expenses were $12.5 million, $11.3
million and $8.8 million for 2015, 2014 and 2013, respectively.
Product development expenses increased $1.2 million in 2015 compared to 2014. The increase was primarily due to a
$1.0 million increase in professional service expenses due in part to the development of our hotel booking platform capabilities
and enhancement to our website and mobile applications.
Product development expenses increased $2.5 million in 2014 compared to 2013. The increase was primarily due to a
$2.1 million increase in salary and employee related expenses due in part to an increase in headcount.
General and Administrative
General and administrative expenses consist primarily of compensation for administrative, executive, fees for
professional services, rent, bad debt expense, amortization of intangible assets, and general office expense. General and
administrative expenses were $24.2 million, $29.0 million and $29.6 million for 2015, 2014 and 2013, respectively.
General and administrative expenses decreased $4.8 million in 2015 compared to 2014. The decrease was primarily due
to a $3.7 million decrease in salary and employee related expenses due in part to a decrease in headcount and professional
services costs.
General and administrative expenses decreased $589,000 in 2014 compared to 2013. The decrease was primarily due to a
$545,000 decrease in salary and employee related expenses.
41
Unexchanged Promotional Shares
On April 21, 2011, the Company entered into an agreement with the State of Delaware resolving all claims relating to a
previously-announced unclaimed property review. The primary issue raised in the preliminary findings from the review,
received by the Company on April 12, 2011, concerned the shares of Travelzoo which have not been claimed by former
shareholders of Travelzoo.com Corporation following a 2002 merger, as previously disclosed in the Company’s report on Form
10-K. In the preliminary findings under the unclaimed property review, up to 3.0 million shares were identified as
“demandable” under Delaware escheat laws. While the Company continues to take the position that such shares were a
promotional incentive and were issuable only to persons who establish their eligibility as shareholders, the Company
determined that it was in its best interest to promptly resolve all claims relating to the unclaimed property review. Under the
terms of the agreement, the Company made a $20.0 million cash payment to the State of Delaware in April 2011 and received a
complete release of those claims from the State of Delaware. The $20.0 million payment was recorded as an expense in the
three months ended March 31, 2011.
Since March 2012, the Company became subject to unclaimed property reviews by most of the other states in the U.S.
that relate primarily to the unexchanged promotional shares, which were not covered by the settlement and release by the State
of Delaware. During the three months ended March 31, 2012, the Company recorded a $3.0 million charge related to this
unexchanged promotional merger shares contingency.
In October 2013, the Company entered into settlement agreements with 35 additional states to resolve those states’ claims
related to similar unclaimed property audits. The multi-state settlement relates to approximately 700,000 additional shares of
the Company that were not claimed by residents of those states following the merger, which those states claimed were subject
to escheat. While the Company disputes the states’ claims, the Company determined that it was in its best interest to resolve the
disputes and settle with 35 of the states. The remaining states, which were not included in the multi-state settlement as of
October 2013, had potential claims on approximately 400,000 additional shares that were not claimed by residents in those
states following the merger. During the three months ended September 30, 2013, the Company recorded a $22.0 million charge
related to the settlements it entered into and for potential future settlements with the remaining states. During the year ended
December 31, 2014, the Company released a $7.6 million of the reserve related to the completion of settlements with certain
states for unclaimed property disputes in connection with unexchanged promotional shares. During the year ended
December 31, 2015, the Company settled with the remaining states and made cash payments of $3.7 million to the settled states
after completion of the required due diligence. See Note 5 to the accompanying consolidated financial statements for further
information on the unexchanged promotional shares contingency.
Other Income (loss)
Other income (loss) consisted primarily of foreign exchange transactions gains and losses, interest income earned on
cash, cash equivalents and restricted cash as well as interest expense. Other income (loss) was $(1.2) million, $91,000 and
$(25,000) for 2015, 2014 and 2013, respectively. Other income decreased $1.3 million from 2014 to 2015. This decrease was
primarily due to a $1.1 million foreign exchange transactions losses. Other income increased $116,000 from 2013 to 2014. This
increase was primarily due to foreign exchange transactions gains.
Income Taxes
Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflect federal, state and country
statutory rates applicable to our worldwide income, adjusted to take into account expenses that are treated as having no
recognizable tax benefit. Income tax expense (benefit) was $(5.0) million, $4.8 million and $7.7 million for 2015, 2014 and
2013, respectively. Our effective tax rate was (84)%, 27% and 679% for 2015, 2014 and 2013, respectively.
Our effective tax rate decreased for the year ended December 31,2015 compared to the year ended December 31, 2014,
due primarily to the recognition of an $8.4 million tax benefit related to the unexchanged promotional shares after a lapse of
certain statute of limitations, which decreased the Company's effective tax rate by 143%. Our effective tax rate decreased for
the year ended December 31,2014 compared to the year ended December 31, 2013, due to the treatment of the $7.6 million
release of reserve for the unexchanged promotional shares as having no recognizable tax impact, which decreased the
Company's effective tax rate by 20%. For the year ended December 31, 2013, the $22.0 million expense for the unexchanged
promotional shares was treated as having no recognizable tax benefits, which increased the Company's effective tax rate by
646%. We expect that our effective tax rate in future periods may fluctuate depending on the geographic mix of our worldwide
taxable income, total amount of expenses representing payments to former stockholders, losses or gains incurred by our
operations in Asia Pacific, Canada and Europe, statutory tax rate changes that may occur and the need for valuation allowances
on certain tax assets, if any.
42
As of December 31, 2015, the Company has a valuation allowance of approximately $6.9 million related to foreign net
operating loss carryforwards (“NOL”) of approximately $29.6 million for which it is more likely than not that the tax benefit
will not be realized. If not utilized, the foreign net operating loss carryforwards begin to expire in 2016. The amount of the
valuation allowance represented an increase of approximately $509,000 over the amount recorded as of December 31, 2014,
and was due to the increase in foreign operating losses.
U.S. income and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S.
subsidiaries. The undistributed earnings on a book basis for those non-U.S. subsidiaries are approximately $7.9 million. The
Company intends to reinvest these earnings indefinitely in its operations outside the U.S. If the undistributed earnings are
remitted to the U.S., these amounts would be taxable in the U.S. at the current federal and state tax rates net of foreign tax
credits. Also, depending on the jurisdiction any distribution may be subject to withholding taxes at rates applicable for that
jurisdiction. The estimated amount of the unrecognized deferred tax liability attributed to future dividend distributions of
undistributed earnings is approximately $538,000 at December 31, 2015.
We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We are subject to
U.S. federal and certain state tax examinations for years after 2009 and are subject to California tax examinations for years
after 2005. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net
operating income. Our 2009 federal income tax return is currently under examination, including a review of the impact of the
sale of Asia Pacific business segment in 2009. In connection with this examination, we have received a Revenue Agent’s
Report (RAR) from the IRS, generally issued at the conclusion of an IRS examination. The RAR proposes an increase to our
U.S. taxable income which would result in additional federal tax, federal penalty and state tax expense totaling approximately
$31 million, excluding interest and state penalties, if any. See Note 6 to the accompanying unaudited condensed consolidated
financial statements for further information.
Segment Information
Asia Pacific
Revenues
Income from operations
Income from operations as a % of revenues
Year Ended December 31,
2015
2014
2013
(In thousands)
$
$
10,683
(2,435)
$
$
11,075
(3,378)
$
$
12,073
(1,444)
(23)%
(31)%
(12)%
Asia Pacific net revenues decreased $392,000 in 2015 compared to 2014 (see “Revenues” above). Asia Pacific expenses
decreased $1.1 million from 2014 to 2015. This decrease was primarily due to a $813,000 decrease in salary and employee
related expense due primarily to a decrease in headcount.
Asia Pacific net revenues decreased $1.0 million in 2014 compared to 2013 (see “Revenues” above). Asia Pacific
expenses increased $936,000 from 2013 to 2014. This increase was primarily due to a $446,000 increase in salary and
employee related expense and a $255,000 increase in professional services expense.
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency loss from our operations
in Asia Pacific by approximately $16,000 for 2015. Foreign currency movements relative to the U.S. dollar negatively impacted
our local currency loss from our operations in Asia Pacific by approximately $9,000 and $287,000 for 2014 and 2013,
respectively.
Europe
Revenues
Income from operations
Income from operations as a % of revenues
Year Ended December 31,
2015
2014
2013
(In thousands)
$
$
42,132
3,871
$
$
45,975
5,818
$
$
46,039
7,836
9%
13%
17%
43
Europe net revenues decreased $3.8 million in 2015 compared to 2014 (see “Revenues” above). Europe expenses
decreased $1.9 million from 2014 to 2015. This decrease was primarily due to a $2.1 million decrease in salary and employee
related expense due in part to a decrease in headcount, a $1.1 million decrease in search traffic acquisition costs offset by a $1.9
million increase in member acquisition and marketing costs.
Europe net revenues decreased $64,000 in 2014 compared to 2013 (see “Revenues” above). Europe expenses increased
$2.0 million from 2013 to 2014. This increase was primarily due to a $1.8 million increase in member acquisition costs.
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our
operations in Europe by approximately $41,000 for 2015. Foreign currency movements relative to the U.S. dollar positively
impacted our local currency income from our operations in Europe by approximately $325,000 for 2014. Foreign currency
movements relative to the U.S. dollar negatively impacted our local currency income from our operations in Europe by
approximately $55,000 for 2013.
North America
Revenues
Income from operations
Income from operations as a % of revenues
Year Ended December 31,
2015
2014
2013
(In thousands)
$
$
88,901
5,710
$
$
96,191
7,787
$
$
112,520
16,769
6%
8%
15%
North America net revenues decreased $7.3 million in 2015 compared to 2014 (see “Revenues” above). North America
expenses decreased $5.2 million from 2014 to 2015. This decrease was primarily due to a $5.5 million decrease in salary and
employee related expense due in part to a decrease in headcount offset by a $1.0 million increase in member acquisition costs.
North America net revenues decreased $16.3 million in 2014 compared to 2013 (see “Revenues” above). North America
expenses decreased $7.3 million from 2014 to 2013. This decrease was primarily due to a $5.3 million decrease in Search
traffic acquisition costs and a $1.3 million decrease in salary and employee related expense.
Liquidity and Capital Resources
As of December 31, 2015, we had $35.1 million in cash and cash equivalents, of which $22.6 million was held outside
the U.S. in certain of our foreign operations. If these assets are distributed to the U.S., we may be subject to additional U.S.
taxes in certain circumstances. Cash and cash equivalents decreased from $55.4 million as of December 31, 2014 primarily as a
result of cash used in acquiring the Travelzoo Asia Pacific business, effect of exchange rate changes on cash and cash
equivalents, partially offset by cash provided by operating activities as explained below. We expect that cash on hand will be
sufficient to provide for working capital needs for at least the next twelve months.
Year Ended December 31,
2015
2014
2013
( In thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
$
$
$
4,192
(1,218)
(20,012)
(3,251)
(20,289) $ (13,251) $
(1,587) $
(3,587)
(4,693)
(3,384)
15,963
(3,603)
(8,452)
71
3,979
Net 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 was $4.2 million for 2015, which consisted of a net income of $10.9
million, adjustments for non-cash items of $4.0 million and a $10.6 million decrease in cash from changes in operating assets
44
and liabilities. Adjustments for non-cash items primarily consisted of $2.8 million of depreciation and amortization expense on
property and equipment and $401,000 of stock-based compensation expense. In addition, the decrease in cash from changes in
operating assets and liabilities primarily consisted of $7.9 million in other non-current liabilities, $1.4 million in accrued
expenses for unexchanged promotional shares, $3.0 million in accounts payable and accrued expenses offset by $2.4 million in
income tax receivable.
Net cash used in operating activities was $1.6 million for 2014, which consisted of a net income of $13.1 million,
adjustments for non-cash items of $4.5 million and a $19.2 million decrease in cash from changes in operating assets and
liabilities. Adjustments for non-cash items primarily consisted of $982,000 of stock-based compensation expense and $3.0
million of depreciation and amortization expense on property and equipment. In addition, the decrease in cash from changes in
operating assets and liabilities primarily consisted of $11.3 million in accrued expenses for unexchanged promotional shares,
$7.9 million in accounts payable and $1.1 million in income taxes receivable.
Net cash provided by operating activities was $16.0 million for 2013, which consisted of a net loss of $6.6 million,
adjustments for non-cash items of $5.4 million and a $17.2 million increase in cash from changes in operating assets and
liabilities. Adjustments for non-cash items primarily consisted of $1.4 million of stock-based compensation expense and $3.1
million of depreciation and amortization expense on property and equipment. In addition, the increase in cash from changes in
operating assets and liabilities primarily consisted of $9.7 million in accrued expenses for unexchanged promotional shares,
$4.0 million in income taxes receivable and $3.1 million in accounts payable.
Cash paid for income tax net of refunds received in 2015, 2014 and 2013 was $801,000, $4.6 million and $2.6 million,
respectively.
Net cash used in investing activities for 2015, 2014 and 2013 was $1.2 million, $3.6 million and $3.6 million,
respectively. The cash used in investing activities in 2015 was due primarily due to $1.3 million in purchases of property and
equipment offset by $64,000 release of restricted cash. The cash used in investing activities in 2014 was due primarily to $3.8
million in purchases of property and equipment offset by $226,000 release of restricted cash. The cash used in investing
activities in 2013 was due primarily to $5.5 million in purchases of property and equipment offset by $1.9 million release of
restricted cash.
Net cash used in financing activities for 2015, 2014 and 2013 was $20.0 million, $4.7 million and $8.5 million,
respectively. Net cash used in financing activities for the year ended December 31, 2015 was primarily due to cash used in
acquiring the Travelzoo Asia Pacific business and repurchases of our common stock. Net cash used in financing activities for
the year ended December 31, 2014 and 2013 were primarily to repurchases of our common stock.
See Note 5 to the accompanying unaudited condensed consolidated financial statements for information on the
unexchanged promotional share settlements and related cash program.
Although the Company has settled the states unclaimed property claims with all states, the Company may still receive
inquiries from certain potential Netsurfer promotional stockholders that had not provided their state of residence to the
Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments
to individuals related to the promotional shares for individuals whose residence was unknown by the Company and
who establish that they satisfied the conditions to receive shares of Travelzoo.com Corporation, and who failed to submit
requests to convert their shares into shares of Travelzoo Inc. within the required time period. This voluntary program is not
available for individuals whose promotional shares have been escheated to a state by the Company.
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 related to former stockholders of
Travelzoo.com Corporation, expansion of our operations, and the amount of resources we devote to promoting awareness of
our Travelzoo and Fly.com brands. Since the inception of the program under which we 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 $2.9 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 fluctuations in our cost of revenues, sales and marketing expenses and
our general and administrative expenses, including increases in product development costs, and we anticipate that these
increases will continue for the foreseeable future. We believe cash on hand will be sufficient to pay such costs for at least the
next twelve months. 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.
45
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 twelve months, unanticipated events and opportunities or a less favorable
than expected development of our business with one or more of advertising formats 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 is less favorable than expected, we may decide to significantly reduce the size of our
operations and marketing expenses in certain markets with the objective of reducing cash outflow.
The information set forth under “Note 5 — Commitments and Contingencies” to the accompanying consolidated
financial statements included in Part II, Item 8 of this report is incorporated herein by reference. Litigation and claims against
the Company may result in legal defense costs, settlements or judgments that could have a material impact on our financial
condition.
The following summarizes our principal contractual commitments as of December 31, 2015 (in thousands):
Operating leases
Purchase obligations
Total commitments
2016
2017
2018
2019
2020
Thereafter
Total
$
$
4,621
1,537
6,158
$
$
3,895
882
4,777
$
$
3,311
365
3,676
$
$
3,033
—
3,033
$
$
2,633
—
2,633
$
$
7,801
$ 25,294
—
2,784
7,801
$ 28,078
We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $3.0 million as
of December 31, 2015. In addition, the Company received a Revenue Agents' Report from the IRS for the 2009 calendar year
related to the sale of our Asia Pacific business segment, which would result in additional federal and state tax expense totaling
approximately $31.0 million, excluding interest and state penalties, if any. We are unable to make reasonably reliable estimates
on the timing of the cash settlements with the respective taxing authorities, if any. See Note 6 to the accompanying
consolidated financial statements for further information.
On August 20, 2015, as part of the Asia Pacific acquisition, Travelzoo (Europe) Limited issued a promissory note to
Azzurro with a principal amount of $5.7 million, with a maturity date of August 20, 2018 and the ability to pay off principal
prior to this maturity date with no prepayment penalty and a stated interest rate of 7%. In January 2016, the full amount of the
loan was paid off by Travelzoo (Europe) Limited.
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 management’s
judgments and estimates. These significant accounting policies relate to revenue recognition, reserve for member refunds,
allowance for doubtful accounts, income tax and loss contingencies. These policies, and our procedures related to these
policies, are described in detail below.
Revenue Recognition
We recognize advertising revenues in the period in which the advertisement is displayed, or the voucher sale has been
completed, 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 allocates the total arrangement fee to each element based on the relative estimated selling price of each
element. The Company uses prices stated on its internal rate card, which represents stand-alone sales prices, to establish
estimated selling prices. 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, the Company evaluates each of these criteria as follows:
46
•
•
•
•
Evidence of an arrangement. We consider an insertion order signed by the advertiser 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 and the voucher sale has been completed.
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. We conduct a credit review for all advertising transactions at the
time of the arrangement to determine the creditworthiness of the advertiser. Collection is deemed reasonably
assured if we expect that the advertiser will be able to pay amounts under the arrangement as payments
become due. Collection is deemed not reasonably assured when an advertiser 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. If we determine that collection is not reasonably assured, then we defer the
revenue and recognize the revenue upon cash collection. Collection is deemed reasonably assured for our
voucher sales to consumers as these transactions require the use of credit cards subject to authorization.
Revenues from advertising sold to advertisers through agencies are reported at the net amount billed to the agency.
For Local Deals and Getaways products, the Company earns a fee for acting as an agent in these transactions which is
recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant contracts in foreign
locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we
recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to
merchants, members or others.
Commission revenues generated through provision of hotel booking reservations to hotels are recognized upon the
estimated date the stay occurs at the hotel, which includes estimates of cancellations of the hotel bookings based upon historical
patterns. If the hotel booking cannot be canceled or the hotel advertiser has agreed to pay for booking regardless of potential
future cancellations then revenue is recognized upon booking.
Reserve for Member Refunds
We record an estimated reserve for member refunds based on our historical experience at the time revenue is recorded for
Local Deals and Getaway voucher sales. We accrue costs associated with refunds in accrued expenses on the consolidated
balance sheets. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical
reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of
redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which
could impact the level of our future reserves for member refunds. Specifically, if the financial condition of our advertisers, the
business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our
members, additional reserves for member refunds may be required.
Estimated member refunds that are determined to be recoverable from the merchant are recorded in the consolidated
statements of operations as a reduction to revenue. Estimated member refunds that are determined not to be recoverable from
the merchant are presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported
results of operations could differ from the amount we previously accrued.
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 advertiser, the economic
conditions of the advertiser’s 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 advertisers were to deteriorate, affecting their ability to make payments,
additional provision for doubtful accounts may be required.
47
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe we have
adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will
not be different. We adjust these reserves in light of changing facts and circumstances, such as the progress or closing of a tax
audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts
recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The
provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as
well as the related net interest.
Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations, state
taxes, certain benefits realized related to stock option activities, the extent that our earnings are indefinitely reinvested outside
the U.S. and tax asset valuation allowance determinations, including on certain loss carryforwards. For the years ended
December 31, 2015, 2014 and 2013, our effective tax rates were (84)%, 27% and 679%, respectively. Our future effective tax
rates could be materially impacted by earnings being lower than anticipated in countries where we have lower statutory rates
and higher than anticipated in countries where we have higher statutory rates, changes in the deferred tax assets or liabilities,
changes in tax asset valuation allowance determinations, changes in our judgment about whether certain foreign earnings are
indefinitely reinvested outside the U.S., or changes in tax laws, regulations, and accounting principles. In addition, we are
subject to the continuous examination of our income tax returns by the IRS and other tax authorities. We regularly assess the
likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
See Note 6 to the accompanying consolidated financial statements for further information.
Loss Contingencies
We are involved in claims, suits, and proceedings arising from the ordinary course of our business. We record a provision
for a liability when we believe that it is both probable that a liability has been incurred, and the amount can be reasonably
estimated. Significant judgment is required to determine both probability and the estimated amount. Such claim proceedings
are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. Should any of these
estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations,
financial position and cash flows. We have several known loss contingencies such as our liability to former stockholders of
Travelzoo.com Corporation that may be realized as a result of our cash program for these claimants and the 2009 IRS audit
claims. Please refer to Note 5 and 6 to the accompanying consolidated financial statements for further information regarding
our loss contingencies.
Recent Accounting Pronouncements
See “Note 1 — Summary of Significant Accounting Policies” to the accompanying consolidated financial statements
included in this report, regarding our significant accounting policies and any impact of certain recent accounting
pronouncements on our consolidated financial statements.
48
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We believe that our potential exposure to changes in market interest rates is not material. The Company is not a party to
any derivative 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. Our operations in Asia Pacific expose us to foreign currency risk associated with agreements being
denominated in Australian dollars, Chinese Yuan, Hong Kong dollar, Japanese Yen and Taiwanese Yuan. We are exposed to
foreign currency risk associated with fluctuations of these currencies as the financial position and operating results of our
operations in Asia Pacific, Canada and Europe are 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 December 31, 2015,
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 December 31, 2015. The sensitivity analysis indicated
that a hypothetical 10% adverse movement in foreign currency exchange rates would result in an incremental $149,000 foreign
exchange loss for the year ended December 31, 2015.
49
Item 8. Financial Statements and Supplementary Data
TRAVELZOO INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
51
52
53
54
55
56
57
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Travelzoo Inc.:
We have audited the accompanying consolidated balance sheets of Travelzoo Inc. and subsidiaries (Travelzoo) as of
December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2015. We also have
audited Travelzoo's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Travelzoo's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express an opinion on these consolidated financial statements and an opinion on Travelzoo's internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Travelzoo Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, Travelzoo maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013)
issued by COSO.
Travelzoo acquired Travelzoo Asia Pacific during 2015, and management excluded from its assessment of the
effectiveness of Travelzoo’s internal control over financial reporting as of December 31, 2015, Travelzoo Asia Pacific’s internal
control over financial reporting associated with total assets of $5.8 million and total revenues of $10.8 million included in the
consolidated financial statements of Travelzoo Inc. and subsidiaries as of and for the year ended December 31, 2015. Our audit
of internal control over financial reporting of Travelzoo also excluded an evaluation of the internal control over financial
reporting of Travelzoo Asia Pacific
Santa Clara, California
March 14, 2016
/s/ KPMG LLP
51
TRAVELZOO INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
Current assets:
Cash and cash equivalents
ASSETS
Accounts receivable, less allowance for doubtful accounts of $384 and $444 as of December 31,
2015 and 2014, respectively
Income tax receivable
Deferred tax assets
Deposits
Prepaid expenses and other
Total current assets
Deposits
Deferred tax assets
Restricted cash
Property and equipment, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other
Deferred revenue
Income tax payable
Reserve for unexchanged promotional shares
Note payable to related party
Total current liabilities
Long-term tax liabilities
Long-term deferred rent and other
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; 14,518 shares issued and outstanding
as of December 31, 2015 and 15,801 shares issued,14,730 shares outstanding as of December 31,
2014)
Treasury stock (at cost, 0 and 1,071 shares at December 31, 2015 and 2014, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
52
$
$
December 31,
2015
December 31,
2014
$
35,128
$
55,417
16,398
1,356
1,230
782
2,167
57,061
501
1,769
1,328
7,905
15
16,124
3,756
1,311
86
2,676
79,370
1,436
1,432
1,393
9,498
178
68,579
$
93,307
23,655
$
10,140
1,085
477
—
5,658
41,015
3,000
3,177
—
150
—
7,759
17,386
(3,908)
21,387
26,858
11,814
1,472
574
1,393
1,000
43,111
10,936
3,433
—
163
(21,517)
30,586
29,197
(2,602)
35,827
93,307
$
68,579
$
TRAVELZOO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Product development
General and administrative
Unexchanged promotional shares
Total operating expenses
Income from operations
Other income (loss)
Income before income taxes
Income taxes
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Shares used in computing basic net income (loss) per share
Shares used in computing diluted net income (loss) per share
Year Ended December 31,
2015
2014
2013
$
141,716
$
153,240
$
170,633
18,824
122,892
79,042
12,528
24,176
—
115,746
7,146
(1,242)
5,904
(4,960)
10,864
0.74
0.74
14,722
14,722
$
$
$
19,174
134,066
83,511
11,326
29,002
(7,583)
116,256
17,810
91
17,901
4,839
13,062
0.88
0.88
14,768
14,809
$
$
$
18,477
152,156
90,576
8,828
29,591
22,000
150,995
1,161
(25)
1,136
7,718
(6,582)
(0.43)
(0.43)
15,269
15,269
$
$
$
See accompanying notes to consolidated financial statements.
53
TRAVELZOO INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustment
Total comprehensive income (loss)
Year Ended December 31,
2015
2014
2013
10,864
$
13,062
$
(6,582)
(1,306)
9,558
$
(2,228)
10,834
$
296
(6,286)
$
$
See accompanying notes to consolidated financial statements.
54
TRAVELZOO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
Amount
15,362
$
163
Treasury
Stock
Additional
Paid-In
Capital
$ (7,898) $ 28,106
1,384
—
—
—
(7,764)
(6)
(14,017)
Total
Stockholders’
Equity
Accumulated
Other
Comprehensive
Loss
$
(670) $
—
43,582
1,384
(7,764)
(14,023)
—
—
Balances, December 31, 2012
Stock-based compensation expense
Repurchase of common stock
Shares fractionalized from reverse/
forward stock split, including
Proceeds from sale of shares
fractionalized from reverse/forward
stock split, including transaction
costs
Foreign currency translation
adjustment
Net loss
Balances, December 31, 2013
Stock-based compensation expense
Income tax impact from stock
options
Repurchase of common stock, net
Proceeds from sale of shares
fractionalized from reverse/forward
stock split, including transaction
costs
Foreign currency translation
adjustment
Net income
Balances, December 31, 2014
Stock-based compensation expense
Retirement of treasury stock
Repurchase of common stock
Proceeds from sale of shares
fractionalized from reverse/forward
stock split, including transaction
costs
Acquisition of Asia Pacific
business
Foreign currency translation
adjustment
Net income
—
(371)
(643)
643
—
—
14,991
—
—
(261)
—
—
—
14,730
—
—
(212)
—
—
—
—
Retained
Earnings
$ 23,881
—
—
—
(820)
—
(6,582)
16,479
—
—
—
(344)
—
13,062
29,197
—
—
—
—
—
—
—
—
29,490
982
(186)
300
—
—
—
30,586
401
(23,228)
—
—
—
—
—
—
(102)
— (22,573)
—
—
—
10,864
14,017
—
—
(15,662)
—
—
(5,855)
—
—
—
(21,517)
—
23,241
(1,724)
6
—
—
163
—
—
—
—
—
—
163
—
(13)
—
—
—
—
—
Balances, December 31, 2015
14,518
$
150
$
— $
7,759
$ 17,386
$
See accompanying notes to consolidated financial statements.
55
—
13,203
296
—
(374)
—
—
—
—
(2,228)
—
(2,602)
—
—
—
—
—
(1,306)
—
(3,908) $
296
(6,582)
30,096
982
(186)
(5,555)
(344)
(2,228)
13,062
35,827
401
—
(1,724)
(102)
(22,573)
(1,306)
10,864
21,387
TRAVELZOO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$ 10,864
$ 13,062
$ (6,582)
Year Ended December 31,
2015
2014
2013
Depreciation and amortization
Provision for losses on accounts receivable
Stock-based compensation
Deferred income tax
Impairment of software
Net foreign currency effect
Changes in operating assets and liabilities:
Accounts receivable
Income tax receivable
Prepaid expenses and other
Accounts payable
Reserve for unexchanged promotional shares
Accrued expenses and other
Income tax payable
Other non-current liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property and equipment
Release of restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Payment for the acquisition of the Asia Pacific business
Payment of loan to related party
Proceeds from loan from related party
Increase in bank overdraft
Decrease in bank overdraft
Repurchase of common stock
Reverse/forward stock split, including transaction costs
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net
Cash paid for interest
Note payable for the acquisition of the Asia Pacific business
Funds held by transfer agent for settlement of reverse/forward stock split
Payable to shareholders for reverse/forward stock split
Leasehold improvements funded by landlord
See accompanying notes to consolidated financial statements.
56
2,788
(20)
401
(269)
—
480
(789)
2,371
675
(1,139)
(1,393)
(1,681)
(161)
(7,935)
4,192
(1,282)
64
(1,218)
2,986
35
982
303
249
(16)
(830)
(1,114)
822
(7,893)
(11,333)
52
608
500
(1,587)
3,127
(5)
1,384
706
—
176
(766)
4,042
(776)
3,117
9,726
1,414
(6)
406
15,963
(3,813)
226
(3,587)
(5,510)
1,907
(3,603)
(16,974)
(3,250)
2,224
44
(385)
(1,569)
(102)
(20,012)
(3,251)
(20,289)
55,417
—
—
1,000
341
—
(5,555)
(479)
(4,693)
(3,384)
(13,251)
68,668
—
—
—
—
(7,764)
(688)
(8,452)
71
3,979
64,689
$ 35,128
$ 55,417
$ 68,668
801
$
$
128
$ 5,658
—
—
— $
$ 4,606
$ 2,609
—
—
—
—
— $ 13,558
— $ 13,668
705
$
624
TRAVELZOO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo Inc. (the “Company” or “Travelzoo”) is a global media commerce company. We inform over 28 million
members in Asia Pacific, Europe and North America, as well as millions of website users, about the best travel, entertainment
and local deals available from thousands of companies. Our deal experts source, research and test-book offers, recommending
only those that meet Travelzoo’s rigorous quality standards. We provide travel, entertainment, and local businesses 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 (travelzoo.com, travelzoo.ca, travelzoo.co.uk, travelzoo.de,
travelzoo.es, travelzoo.fr, cn.travelzoo.com, travelzoo.co.jp, travelzoo.com.au, travelzoo.com.hk, travelzoo.com.tw, 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. Our Travelzoo
websites include Local Deals and Getaway listings that allow our members to purchase vouchers for deals from local
businesses such as spas, hotels and restaurants. We receive a percentage of the face value of the voucher from the local
businesses. 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.
Ralph Bartel, who founded Travelzoo and who is a Director of the Company is the sole beneficiary of the Ralph Bartel
2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. ("Azzurro"). As of December 31, 2015, Azzurro is the
Company's largest stockholder, holding approximately 51.2% of the outstanding shares.
On August 20, 2015 we acquired the Travelzoo Asia Pacific business (“Asia Pacific”), which includes the Travelzoo
businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently operated by
Azzurro Capital Inc. under a licensing agreement with Travelzoo Inc. Azzurro was the majority stockholder of the Travelzoo
Asia Pacific business. Travelzoo Inc. accounted for the acquisition as a common control transaction and change in reporting
entity. The financial results for Travelzoo Inc. have been retrospectively adjusted to include the financial results of Asia Pacific
in the current and prior periods as though the transaction occurred at the beginning of each period presented. The Asia Pacific
assets and liabilities have been combined with Travelzoo Inc. at their carrying values as though the transaction occurred at the
beginning of each period presented. The Asia Pacific transaction proceeds are reflected as an equity transaction, included in
retained earnings, during the period the transaction occurred, which was in the year ended December 31, 2015. See Note 13 to
the accompanying unaudited condensed consolidated financial statements for further information on the acquisition of Asia
Pacific.
Certain prior period statement of operations amounts have been reclassified to conform to the current period presentation
primarily due to the Company's allocation of facilities costs to all of its operating activities and separate disclosure of product
development costs as shown below (in thousands):
Cost of revenues
Sales and marketing
Product development
General and administrative
Year Ended December 31,
2014
2013
$
$
378
$
8,814
11,091
(20,283)
— $
144
8,738
8,649
(17,531)
—
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including
the recently acquired Asia Pacific subsidiaries reflected in the current and prior periods. All significant intercompany accounts
and transactions have been eliminated in consolidation.
57
(b) Revenue Recognition
The Company’s revenue consists primarily of advertising sales. Advertising revenues are principally derived from the
sale of advertising in Asia Pacific, Europe and North America 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 and Getaway e-mail alert services and providing hotel bookings.
Advertising revenues are recognized in the period in which the advertisement is displayed or the voucher sale has been
completed, provided that evidence of an arrangement exists, the fees are fixed or determinable and collection of the resulting
receivable is reasonably assured. The Company evaluates each of these criteria as follows:
•
•
•
•
Evidence of an arrangement. The Company considers an insertion order signed by the advertiser or its agency to be
evidence of an arrangement.
Delivery. Delivery is considered to occur when the advertising has been displayed, the click-throughs have been
delivered or the voucher sale has been completed, as applicable.
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. The Company conducts a credit review for all advertising transactions at the
time of the arrangement to determine the creditworthiness of the advertiser. Collection is deemed reasonably assured if
it is expected that the advertiser will be able to pay amounts under the arrangement as payments become due.
Collection is deemed not reasonably assured when an advertiser is perceived to be in financial distress, which may be
evidenced by weak industry condition, bankruptcy filing, or previously billed amounts that are past due. If it is
determined that collection is not reasonably assured, then revenue is deferred and recognized upon cash collection.
Collection is deemed reasonably assured for our voucher sales to consumers as these transactions require the use of
credit cards subject to authorization.
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 allocates the total arrangement fee to
each element based on the relative estimated selling price of each element. The Company recognizes revenue for the period
based on elements delivered during the period. The Company uses prices stated on its internal rate card, which represents
stand-alone sales prices, to establish estimated selling prices. 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, number of emails sent or number of referrals generated during
the period.
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 listings, which are
invoiced upon delivery. Insertion orders that include variable-fee advertising are invoiced at the end of the month. The
Company’s 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 advertiser shall be limited to, at Travelzoo’s 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.
Revenues from advertising sold to advertisers through agencies are reported at the net amount billed to the agency.
For Local Deals and Getaways products, the Company earns a fee for acting as an agent in these transactions which is
recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant contracts in foreign
locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration, which we
recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to
merchants, members or others.
Commission revenues generated through provision of hotel booking reservations to hotels are recognized upon the
estimated date the stay occurs at the hotel, which includes estimates of cancellations of the hotel bookings based upon historical
patterns. If the hotel booking cannot be canceled then revenue is recognized upon booking.
58
(c) Reserve for Member Refunds
We record an estimated reserve for member refunds based on our historical experience at the time revenue is recorded for
Local Deals and Getaways voucher sales. We accrue costs associated with refunds in accrued expenses on the consolidated
balance sheets. We consider many key factors such as the historical refunds based upon the time lag since the sale, historical
reasons for refunds, time period that remains until the deal expiration date, any changes in refund procedures and estimates of
redemptions and breakage. Should any of these factors change, the estimates made by management will also change, which
could impact the level of our future reserves for member refunds. Specifically, if the financial condition of our advertisers, the
business that is providing the vouchered service, were to deteriorate, affecting their ability to provide the services to our
members, additional reserves for member refunds may be required.
Estimated member refunds that are determined to be recoverable from the merchant are recorded in the consolidated
statements of operations as a reduction to revenue. We accrue costs associated with refunds in accrued expenses on the
consolidated balance sheets. Estimated member refunds that are determined not to be recoverable from the merchant, are
presented as a cost of revenue. If our judgments regarding estimated member refunds are inaccurate, reported results of
operations could differ from the amount we previously accrued.
(d) 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 advertiser, the economic
conditions of the advertiser’s 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 advertisers were to deteriorate, affecting their ability to make payments,
additional provision for doubtful accounts may be required.
(e) Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States of America. Actual results could differ materially
from those estimates.
(f) Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with remaining maturities of less than three months on the date of
purchase.
(g) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Additions and improvements are capitalized.
Maintenance and repairs are expensed as incurred. The Company also 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 Company’s business in accordance with the framework established by the FASB accounting guidance for accounting for the
cost of computer software developed or obtained for internal use and accounting for website development costs. 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.
Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Estimated useful
lives are 3 to 5 years for computer hardware and software, capitalized internal-use software and website development costs, and
office equipment and office furniture. The Company depreciates leasehold improvements over the term of the lease or the
estimated useful life of the asset, whichever is shorter.
(h) Advertising Costs
Advertising costs are expensed as incurred. Online advertising is expensed as incurred over the period the advertising is
displayed. Advertising costs amounted to $25.6 million, $20.8 million and $27.8 million for years ended December 31, 2015,
2014 and 2013, respectively.
59
(i) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, along with net
operating loss carryforwards and credit carryforwards, if it is more likely than not that the tax benefits will be realized. To the
extent a deferred tax asset cannot be recognized under the preceding criteria, valuation allowances must be established.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
(j) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the accounting standard relating to impairment of long-
lived assets, which requires an impairment loss to be recognized on assets to be held and used if the carrying amount of a long-
lived asset group is not recoverable from its undiscounted cash flows. The amount of the impairment loss is measured as the
difference between the carrying amount and the fair value of the asset group. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. The Company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. During the year ended
December 31, 2014, the Company recorded a charge to write down the value of certain internally developed software
applications that were no longer determined to have alternative use for $249,000. No impairment loss was recognized during
years ended December 31, 2015 and 2013.
(k) Stock-Based Compensation
The Company accounts for its employee stock options under the fair value method, which requires stock-based
compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion
of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the
Company’s consolidated statements of operations. Total stock-based compensation for the years ended December 31, 2015,
2014 and 2013 was $401,000, $982,000 and $1.4 million, respectively. See Note 9 to the accompanying consolidated financial
statements for a further discussion on stock-based compensation.
(l) Foreign Currency
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. Gains and losses resulting from translation are recorded
as a component of accumulated other comprehensive income (loss).
Realized gains and losses from foreign currency transactions are recognized as gain or loss on foreign currency in the
consolidated statements of operations.
(m) Certain Risks and Uncertainties
The Company’s cash, cash equivalents and accounts receivable are potentially subject to concentration of credit risk.
Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. The
accounts receivable are derived from revenue earned from customers located in the U.S. and internationally. As of
December 31, 2015 and 2014, the Company had one customer that accounted for 15% and 10%, respectively, of accounts
receivable.
60
(n) Recent Accounting Pronouncements
In April 2014, the FASB issued an accounting standard update that changes the threshold and amends the requirements for
reporting discontinued operations. Under the amended guidance, a disposal of a component of an entity or a group of
components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has
(or will have) a major effect on an entity’s operations and financial results when the component or group of components meets
the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than
by sale. For disposals of individually significant components that do not qualify as discontinued operations, an entity must
disclose pre-tax earnings of the disposed component. For public business entities, this guidance is effective prospectively for all
disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after
December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or
classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance.
This accounting standard update became effective for the Company on January 1, 2015. The adoption of this accounting
standard update did not have a material impact on the Company’s consolidated results of operations, financial position or cash
flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
ASU 2014-09 will replace most of the existing revenue recognition guidance in U.S. GAAP when it becomes effective. This
new accounting standard is effective for the Company on January 1, 2018. Early application is not permitted. This new
accounting standard permits the use of either the retrospective or cumulative effect transition method. The Company is
evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company
has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In August 2014, the FASB issued an accounting standard update that requires management to perform interim and annual
assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued
and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements.
Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going
concern. This accounting standard update applies to all entities and is effective for the annual period ending after December 15,
2016, and for annual periods and interim periods thereafter, with early adoption permitted. This accounting standard update will
be effective for the Company on January 1, 2016. The adoption of this accounting standard update is not expected to have a
material impact on the Company’s consolidated results of operations, financial position or cash flows.
In April 2015, the FASB issued ASU 2015-03, Interest- Imputation of Interest, which requires that debt issuance costs
related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that
debt liability. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2015. Early adoption is permitted. This accounting standard update will be effective for the Company on January
1, 2016. The adoption of this standard is not expected to have a material impact on the Company’s consolidated statement of
financial position.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the
presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance
sheet. The updated standard is effective for us beginning on January 1, 2017 with early application permitted as of the
beginning of any interim or annual reporting period. This accounting standard update will be effective for the Company on
January 1, 2017. The adoption of this accounting standard update is not expected to have a material impact on the Company’s
consolidated statement of financial position.
In February 2016, the FASB issued an accounting standard update ASU 2016-02, Leases, which requires that lease
arrangements longer than 12 months result in an entity recognizing an asset and liability. ASU 2016-02 is effective for interim
and annual periods beginning after December 15, 2018, and early adoption is permitted. This accounting standard update will
be effective for the Company on January 1, 2019. The Company has not yet evaluated nor has it determined the effect of the
standard on its ongoing financial reporting.
Note 2: Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding for the
period. Diluted net income (loss) 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.
61
The following table sets forth the calculation of basic and diluted net income (loss) per share (in thousands, except per
share amounts):
Basic net income (loss) per share:
Net income (loss)
Weighted average common shares
Basic net income (loss) per share
Diluted net income (loss) per share:
Net income (loss)
Weighted average common shares
Effect of dilutive securities: stock options
Diluted weighted average common shares
Diluted net income (loss) per share
Year Ended December 31,
2015
2014
2013
$
$
$
$
$
$
$
10,864
14,722
0.74
10,864
14,722
—
14,722
$
$
$
13,062
14,768
0.88
13,062
14,768
41
14,809
0.74
$
0.88
$
(6,582)
15,269
(0.43)
(6,582)
15,269
—
15,269
(0.43)
For the years ended December 31, 2015, 2014 and 2013, options to purchase 775,000, 125,000 and 475,000 shares of
common stock, respectively, were not included in the computation of diluted net loss per share because the effect would have
been anti-dilutive.
62
Note 3: Financial Instruments
The following tables summarize our financial assets measured at fair value on a recurring basis at December 31, 2015
and 2014 (in thousands):
Balance at December 31, 2015
Cash
Total cash
Certificates of deposit
Merchant bank deposit
Total restricted cash and cash equivalents
Balance at December 31, 2014
Cash
Total cash
Certificates of deposit
Merchant bank deposit
Total restricted cash and cash equivalents
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets
Total
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
$
$
$
$
35,128
35,128
708
725
1,433
55,417
55,417
762
800
1,562
$
$
$
$
$
$
$
$
35,128
35,128
$
$
— $
725
725
55,417
55,417
$
$
$
— $
800
800
$
— $
— $
708
—
708
$
$
— $
— $
762
—
762
$
$
—
—
—
—
—
—
—
—
—
—
At December 31, 2015 and 2014, accounts receivable and accounts payable are not measured at fair value; however, the
Company believes that the carrying amounts of these assets and liabilities are a reasonable estimate of their fair value because
of their relative short maturity. Accounts receivable and accounts payable are categorized as Level 2.
At December 31, 2015 and 2014, the notes payable to related party is not measured at fair value; however, the
Company believes that the carrying amounts of these assets and liabilities are a reasonable estimate of their fair value because
of their relatively short maturity and subsequent payment.
There have been no transfers and no changes in valuation methods for these assets or liabilities for the years ended
December 31, 2015 and 2014.
63
Note 4: Balance Sheet Components
Prepaid expenses and other consist of the following (in thousands):
Prepaid expenses
Other current assets
Total prepaid expenses and other
Property and equipment consist of the following (in thousands):
Computer hardware and software
Office equipment and office furniture
Capitalized internal-use software and website development
Leasehold improvements
Less accumulated depreciation and amortization
Total
December 31,
2015
2014
1,630
537
2,167
$
$
2,142
534
2,676
December 31,
2015
2014
4,811
$
9,306
3,089
6,064
23,270
(15,365)
7,905
$
4,516
9,494
3,181
5,651
22,842
(13,344)
9,498
$
$
$
$
Depreciation expense was $2.2 million, $2.6 million, and $2.5 million for the years ended December 31, 2015, 2014 and
2013, respectively.
Amortization of capitalized internal-use software and website development costs was $308,000, $192,000 and zero for
the years ended December 31, 2015, 2014 and 2013, respectively.
64
Changes to the allowance for doubtful accounts and reserve for member refunds are as follows (in thousands):
Allowance
for doubtful
accounts
Reserve for
member
refunds
Balance at January 1, 2013
$
506
$
Additions — charged to costs and expenses, or contra revenue, net
Deductions — recoveries of amounts previously charged-off
Deductions — write-offs
Balance at December 31, 2013
Additions — charged to costs and expenses, or contra revenue, net
Deductions — recoveries of amounts previously charged-off
Deductions — write-offs
Balance at December 31, 2014
Additions — charged to costs and expenses, or contra revenue, net
Deductions — recoveries of amounts previously charged-off
Deductions — write-offs
Balance at December 31, 2015
$
101
(21)
(150)
436
170
(118)
(44)
444
295
(179)
(176)
384
$
999
940
—
(1,126)
813
1,299
—
(1,313)
799
776
—
(1,045)
530
Local Deals and Getaway merchant payable included in accounts payable was $19.1 million and $20.6 million, as of
December 31, 2015 and 2014, respectively.
Accrued expenses and other consist of the following (in thousands):
Accrued advertising expense
Accrued compensation expense
Reserve for member refunds
Other accrued expenses
Deferred rent
Total accrued expenses and other
December 31,
2015
2014
1,801
$
4,373
530
2,963
473
2,738
4,652
799
3,244
381
10,140
$
11,814
$
$
65
Note 5: Commitments and Contingencies
The Company was formed as a result of a combination and merger of entities founded by the Company’s principal
stockholder, Ralph Bartel. In 2002, Travelzoo.com Corporation was merged into Travelzoo Inc. Under and subject to the terms
of the merger agreement, holders of promotional shares of Travelzoo.com Corporation (“Netsurfers”) who established that they
had satisfied certain prerequisite qualifications were allowed a period of 2 years following the effective date of the merger to
receive one share of Travelzoo Inc. in exchange for each share of common stock of Travelzoo.com Corporation. In 2004, two
years following the effective date of the merger, certain promotional shares remained unexchanged. As the right to exchange
these promotional shares expired, no additional shares were reserved for issuance. Thereafter, the Company began to offer a
voluntary cash program for those who established that they had satisfied certain prerequisite qualifications for Netsurfer
promotional shares as further described below.
Beginning in 2010, the Company became subject to unclaimed property audits of various states in the United States
related to the above unexchanged promotional shares. The Company recorded charges for the estimated settlements with these
states of $20.0 million , $3.0 million and $22.0 million in 2011, 2012 and 2013, respectively. In 2014, the Company released
$7.6 million of the reserve related to the completion of settlements with the states and in 2015 the Company paid the final
settlements outstanding.
Although the Company has settled the states unclaimed property claims with all states, the Company may still receive
inquiries from certain potential Netsurfer promotional stockholders that had not provided their state of residence to the
Company by April 25, 2004. Therefore, the Company is continuing its voluntary program under which it makes cash payments
to individuals related to the promotional shares for individuals whose residence was unknown by the Company and who
establish that they satisfy the original conditions required for them to receive shares of Travelzoo.com Corporation, and who
failed to submit requests to convert their shares into shares of Travelzoo Inc. within the required time period. This voluntary
program is not available for individuals whose promotional shares have been escheated to a state by the Company, except those
individuals for which their residence was unknown to the Company. The accompanying consolidated financial statements
include a charge for payments under this voluntary program in general and administrative expenses of $1,000, $6,000 and
$23,000 for the year ended December 31, 2015, 2014 and 2013, respectively.
The total cost of this voluntary program is not reliably estimable because it is based on the ultimate number of valid
requests received and future levels of the Company’s common stock price. The Company’s common stock price affects the
potential 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. In
order to receive payment under this voluntary program, a person is required to establish that such person validly held shares in
Travelzoo.com Corporation.
The Company leases office space in Australia, Canada, China, France, Germany, Hong Kong, Japan, Singapore, Spain,
Taiwan, the U.K., and the U.S. under operating leases which expire between March 31, 2016 and November 30, 2024. Rent
expense was $5.8 million, $6.0 million and $6.2 million for years ended December 31, 2015, 2014 and 2013, respectively.
Some of these lease agreements have free or escalating rent payment provisions. We recognize rent expense under such
arrangements on a straight line basis.
On August 20, 2015, as part of the Asia Pacific acquisition, Travelzoo (Europe) Limited issued a promissory note to
Azzurro with a principal amount of $5.7 million, with a maturity date of August 20, 2018 and the ability to pay off principal
prior to this maturity date with no prepayment penalty and a stated interest rate of 7%. In January 2016, the full amount of the
loan was paid off by Travelzoo (Europe) Limited.
The Company has purchase commitments which represent the minimum obligations the Company has under agreements
with certain vendors. These minimum obligations are less than our projected use for those periods. Payments may be more than
the minimum obligations based on actual use.
The following summarizes our principal contractual commitments as of December 31, 2015 (in thousands):
Operating leases
Purchase obligations
Total commitments
2016
2017
2018
2019
2020
Thereafter
Total
$
$
4,621
1,537
6,158
$
$
3,895
882
4,777
$
$
3,311
365
3,676
$
$
3,033
—
3,033
$
$
2,633
—
2,633
$
$
7,801
$ 25,294
—
2,784
7,801
$ 28,078
66
Note 6: Income Taxes
The components of income (loss) before income tax expense are as follows (in thousands):
U.S.
Foreign
Year Ended December 31,
2015
2014
2013
$
$
5,334
570
5,904
$
$
14,363
3,538
17,901
$
$
(6,964)
8,100
1,136
Income tax expense consists of current and deferred components categorized by federal, state and foreign jurisdictions, as
shown below. The current provision is generally that portion of income tax expense that is currently payable to the taxing
authorities. The Company makes estimated payments of these amounts during the year. The deferred tax provision results from
changes in the Company’s deferred tax assets (future deductible amounts) and tax liabilities (future taxable amounts), which are
presented in the table below:
Year Ended December 31, 2015
Federal
State
Foreign
Year Ended December 31, 2014
Federal
State
Foreign
Year Ended December 31, 2013
Federal
State
Foreign
Current
Deferred
(In thousands)
Total
$
$
$
$
$
$
(5,851) $
337
759
(4,755) $
(238) $
51
(18)
(205) $
2,124
$
294
$
670
1,725
4,519
5,504
1,023
517
$
$
21
5
320
21
(30)
683
$
$
7,044
$
674
$
(6,089)
388
741
(4,960)
2,418
691
1,730
4,839
5,525
993
1,200
7,718
67
Income tax expense differed from the amounts computed by applying the U.S. federal statutory tax rate applicable to the
Company’s level of pretax income as a result of the following (in thousands):
Federal tax at statutory rates
State taxes, net of federal income tax benefit
Expired capital loss carryforward
Change of valuation allowance
Unexchanged promotional shares
Non-deductible expenses and other
Uncertain tax positions
Total income tax expense
Year Ended December 31,
2015
2014
2013
$
2,083
$
7,416
$
254
—
816
—
(178)
(7,935)
(4,960) $
504
1,534
(1,534)
(2,654)
(427)
—
4,839
$
$
947
694
—
(1,131)
7,700
(492)
—
7,718
The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and
liabilities are as follows (in thousands):
December 31,
2015
2014
Deferred tax assets:
Foreign net operating loss carryforwards
$
6,940
$
State income taxes
Accruals and allowances
Stock based compensation
Deferred revenue
Deferred rent
Total deferred tax assets
Valuation allowance
Total deferred tax assets net of valuation allowance
Deferred tax liabilities:
U.S. tax on undistributed earnings
Property, equipment and intangible assets
Total deferred tax liabilities
Net deferred tax assets
142
783
1,932
292
636
10,725
(6,940)
3,785
(247)
(581)
(828)
2,957
$
$
6,431
196
868
1,803
255
580
10,133
(6,431)
3,702
(350)
(636)
(986)
2,716
As of December 31, 2015, the Company has a valuation allowance of approximately $6.9 million related to foreign net
operating loss carryforwards (“NOL”) of approximately $29.6 million for which it is more likely than not that the tax benefit
will not be realized. If not utilized, the foreign net operating loss carryforwards begin to expire in 2016. The amount of the
valuation allowance represented an increase of approximately $509,000 over the amount recorded as of December 31, 2014,
and was due to the increase in foreign operating losses. If not utilized, foreign NOL of $17.2 million may be carried forward
indefinitely, and foreign NOL of $12.4 million will expire at various times between 2016 and 2024.
United States income and foreign withholding taxes have not been provided on undistributed earnings for certain non-
U.S. subsidiaries. The undistributed earnings on a book basis for the non-U.S. subsidiaries are approximately $7.9 million. The
Company intends to reinvest these earnings indefinitely in its operations outside the U.S. If the undistributed earnings are
remitted to the U.S. these amounts would be taxable in the U.S at the current federal and state tax rates net of foreign tax
credits. Also, depending on the jurisdiction any distribution may be subject to withholding taxes at rates applicable for that
jurisdiction. The estimated amount of the unrecognized deferred tax liability attributed to future dividend distributions of
undistributed earnings is approximately $538,000 at December 31, 2015.
68
The Company maintains liabilities for uncertain tax positions. The Company’s policy is to include interest and penalties related
to unrecognized tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become
payable, amounts accrued will be reduced and reflected as a reduction in the overall income tax provision in the period that
such determination is made. At December 31, 2015, the Company had approximately $2.1 million in total unrecognized tax
benefits, approximately $792,000 in accrued interest, of which $229,000 was accrued in 2015, and approximately $80,000 in
accrued penalties, of which none was accrued in 2015. The unrecognized tax benefits of approximately $2.1 million which, if
recognized, would favorably affect the Company’s effective income tax rate. The decrease in the unrecognized tax benefit for
the year ended December 31, 2015 was due primarily to the recognition of a $7.6 million tax benefit related to the unexchanged
promotional shares after a lapse of certain statute of limitations. A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits balance at January 1, 2013
$
9,365
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Settlements
Lapse of statute of limitations
Unrecognized tax benefits balance at December 31, 2013
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Settlements
Lapse of statute of limitations
Unrecognized tax benefits balance at December 31, 2014
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Settlements
Lapse of statute of limitations
Unrecognized tax benefits balance at December 31, 2015
$
—
—
38
(58)
—
9,345
—
—
38
—
—
9,383
584
—
11
—
(7,850)
2,128
The Company is in various stages of multiple year examinations by federal taxing authorities. Although the timing of
initiation, resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of the gross
unrecognized tax benefits related to the method of computing income taxes in certain jurisdictions and losses reported on
certain income tax returns could significantly change in the next 12 months. These changes may occur through settlement with
the taxing authorities or the expiration of the statute of limitations on the returns filed. The Company is unable to estimate the
range of possible adjustments to the balance of the gross unrecognized tax benefits.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The
Company is subject to U.S. federal and certain state tax examinations for certain years after 2008 and is subject to California
tax examinations for years after 2005. The material foreign jurisdictions where the Company is subject to potential
examinations by tax authorities are the United Kingdom and Germany for tax years after 2011. The Company's 2009 federal
income tax return is currently under examination, including a review of the impact of the sale of Asia Pacific business segment
in 2009. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating
income. The Company has received a Revenue Agent’s Report (RAR) generally issued at the conclusion of an IRS
examination, which was consistent with the Notice of Proposed Adjustment received earlier from the IRS for the 2009 calendar
year related to the sale of our Asia Pacific business segment with additional penalties. The RAR proposes an increase to the
Company's U.S. taxable income which would result in additional federal tax, federal penalty and state tax expense totaling
approximately $31 million, excluding interest and state penalties, if any. The proposed adjustment is primarily driven by IRS’s
view that the Asia Pacific business segment assets sold by the Company had a significantly higher valuation than the sales
proceeds the Company received upon the sale. The Company disagrees with the proposed adjustments and intends to
vigorously contest them. The Company did not make any adjustments to its liabilities for uncertain tax positions related to the
RAR for the year ended December 31, 2015 because the Company does not believe the IRS’s valuation of Asia Pacific business
segment assets is appropriate. If we are not able to resolve these proposed adjustments at the IRS examination level, we plan to
pursue all available administrative and, if necessary, judicial remedies.
69
Note 7: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) (in
thousands):
Beginning balance
Other comprehensive income due to foreign currency translation, net of tax
Ending balance
Year Ended December 31,
2015
2014
2013
$
$
(2,602) $
(1,306)
(3,908) $
(374) $
(2,228)
(2,602) $
(670)
296
(374)
There were no amounts reclassified from accumulated other comprehensive income (loss) for the years ended December
31, 2015, 2014 and 2013. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.
Note 8: Employee Benefit Plan
The Company maintains a 401(k) Profit Sharing Plan & Trust (the “401(k) Plan”) for its employees in the United States.
The 401(k) Plan allows employees of the Company to contribute up to 80% of their eligible compensation, subject to certain
limitations. Since 2006, the Company matches employee contributions up to $1,500 per year. Employee contributions are fully
vested upon contribution, whereas the Company’s matching contributions are fully vested after the first year of service. The
Company also has various defined contribution plans for its international employees. The Company’s contributions to these
benefit plans were approximately $2.1 million, $2.2 million and $2.3 million for the years ended December 31, 2015, 2014 and
2013, respectively.
Note 9: Stock-Based Compensation and Stock Options
The Company accounts for its employee stock options under the fair value method, which requires stock-based
compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion
of the award that is expected to vest is recognized on a straight-line basis as expense over the related employees’ requisite
service periods in the Company’s consolidated statements of income. Cash flows resulting from tax deductions in excess of the
compensation cost recognized for those options (excess tax benefits) are classified as financing cash flows. For the years ended
years ended December 31, 2015, 2014 and 2013, there were no stock option exercises and no excess tax benefits.
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, of which 75,000 options vest and become exercisable annually starting on July 1, 2011. The
options expire in November 2019. As of December 31, 2015, 300,000 of these options were vested and outstanding.
In January 2012, the Company granted certain executives stock options to purchase 100,000 shares of common stock
with an exercise price of $28.98, of which 25,000 options vest and become exercisable annually starting on January 23, 2013.
The options expire in January 2022. As of December 31, 2015, 37,500 of the options are vested and 50,000 options are
outstanding. During 2014, 25,000 options were canceled and 25,000 options were forfeited upon the departure of an executive
and the corresponding compensation expense of $186,000 for the forfeited options was reversed.
In July 2013, the Company granted an executive stock options to purchase 75,000 shares of common stock with an
exercise price of $29.58, of which 25,000 options become exercisable annually starting July 1, 2015. The options expire in July
2023. As of December 31, 2015, 25,000 of these options were vested and 25,000 options were outstanding. Due to the planned
departure of the executive in 2015, the Company reversed $216,000 compensation expense which was related to previously
recognized expense on the portion of the options that were no longer expected to vest.
In September 2015, the Company granted an executive stock options to purchase 400,000 shares of common stock with
an exercise price of $8.07, of which 50,000 options become exercisable quarterly starting March 31, 2016. The options expire
in September 2025. As of December 31, 2015, 400,000 options were outstanding and none of these options were vested.
In March 2016, the Company granted certain executives stock options to purchase 150,000 shares of common stock with
an exercise price of $8.55, of which 37,500 options vest and become exercisable annually starting on March 7, 2017.
Total stock-based compensation for fiscal years 2015, 2014 and 2013 was $401,000, $982,000 and $1.4 million,
respectively.
70
The Company utilized the Black-Scholes option pricing model to value the stock options granted in 2015, 2013, 2012 and
2009. The Company used an expected life as defined under the simplified method, which is using an average of the contractual
term and vesting period of the stock options. The risk-free interest rate used for the award is based on the U.S. Treasury yield
curve in effect at the time of grant. The historical volatility was calculated based upon implied volatility of the Company's
historical stock prices. The Company used a forfeiture rate of 0%. 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.
The fair value of 2015, 2013 and 2012 stock options was estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions:
Weighted-average fair value of options granted per share
Historical volatility
Risk-free interest rate
Dividend yield
Expected life in years
2015
2013
2012
$ 4.42
$ 18.87
$ 19.08
59%
70%
74%
1.73%
1.70%
1.11%
—
5.75
—
6.25
—
6.25
As of December 31, 2015, there was approximately $5,000 of unrecognized stock-based compensation expense related to
outstanding 2012 stock options, expected to be recognized over 0.1 years, and approximately $1.6 million of unrecognized
stock-based compensation expense related to outstanding 2015 stock options, expected to be recognized over 2.0 years. As of
December 31, 2015, there was no unrecognized stock-based compensation expense relating to 2009 and 2013 stock options
grants.
Option activities during the years ended December 31, 2013, 2014, and 2015 were as follows:
Outstanding at January 1, 2013
Options granted
Outstanding at December 31, 2013
Options forfeited
Options canceled
Outstanding at December 31, 2014
Option Granted
Options canceled
Outstanding at December 31, 2015
Exercisable and fully vested at
December 31, 2015
Outstanding at December 31, 2015 and
expected to vest thereafter
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
(In thousands)
400,000
75,000
$
$
475,000
$
(25,000) $
(25,000)
425,000
$
400,000
(50,000) $
$
775,000
362,500
412,500
$
$
18.47
7.43 years
29.58
20.23
6.93 years
28.98
28.98
19.20
5.79 years
8.07
29.58
12.78
5.53 years
17.43
0.85 years
8.70
9.64 years
$
$
$
$
$
1,206
1,905
—
120
—
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the
Company’s closing stock price on the last trading day of years ended December 31, 2015, 2014 and 2013 and the exercise
price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option
holders exercised their options on December 31, 2015, 2014, and 2013. This amount changes based on the fair market value of
the Company’s stock. The Company’s policy is to issue shares from the authorized shares to fulfill stock option exercises.
71
Outstanding options at December 31, 2015 were as follows:
Exercise Price
$
$
$
$
Options
Outstanding
Weighted-
Average
Remaining
Contractual
Life
Weighted-
Average
Exercise
Price
Shares
Outstanding
and
Exercisable
0.25 years
6.07 years
0.25 years
9.75 years
$
$
$
$
14.97
28.98
29.58
8.07
300,000
37,500
25,000
—
Options
Exercisable
Weighted-
Average
Remaining
Contractual
Life
0.25 years
6.07 years
0.25 years
—
Shares
Outstanding
300,000
50,000
25,000
400,000
14.97
28.98
29.58
8.07
Note 10: Stock Repurchase Program
The Company's stock repurchase programs assist in offsetting the impact of dilution from employee equity compensation
and for capital allocation purposes. Management is allowed discretion in the execution of the repurchase program based upon
market conditions and consideration of capital allocation.
In July 2012, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000 shares
of the Company’s outstanding common stock. There were 29,000 shares remaining to be repurchased under this program as of
December 31, 2013, which were repurchased in 2014.
In January 2014, the Company announced a stock repurchase program authorizing the repurchase of up to 500,000 shares
of the Company’s outstanding common stock. During the year ended December 31, 2014, the Company repurchased 261,000
shares of common stock for an aggregate purchase price of $5.9 million, which were recorded as part of treasury stock as of
December 31, 2014. During the year ended December 31, 2015, the Company repurchased 212,000 shares of common stock for
an aggregate purchase price of $1.7 million, which were recorded as part of treasury stock as of December 31, 2015. There
were 56,000 shares remaining to be repurchased under this program as of December 31, 2015.
In February 2016, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000
shares of the Company’s outstanding common stock.
Note 11: Reverse/Forward Stock Split
On June 11, 2013, a Special Committee of the Company’s Board of Directors, consisting of three independent directors,
unanimously approved a reverse/forward stock split transaction (collectively referred to as the “reverse/forward split”), subject
to shareholder approval. The reverse/forward split was intended to reduce the Company’s shareholder account administration
costs by reducing the number of its shareholders.
On September 12, 2013, at the Company’s annual shareholders meeting, Travelzoo shareholders voted in favor of the
reverse/forward split, with the transaction receiving the votes of both (A) a majority of the issued and outstanding shares of
common stock and (B) a majority of the issued and outstanding shares of common stock that are not held or controlled, directly
or indirectly, by directors or officers of the Company, including, without limitation, the shares held by Azzurro Capital Inc., our
principal stockholder.
On November 6, 2013, the Special Committee approved the execution of the transaction after receiving an opinion from a
financial advisor regarding the fairness of the transaction from a financial point of view to the Company's shareholders whose
positions, individually considered, consisted of fewer than 25 shares, of the per-share consideration to be received by such
shareholders in the reverse/forward split. The Special Committee received legal counsel from Young Conaway Stargatt &
Taylor, LLP in connection with its review of the transaction. In addition, the Company received legal counsel from Skadden,
Arps, Slate, Meagher & Flom LLP and Bryan Cave LLP in connection with the transaction.
On November 6, 2013, based upon the Special Committee’s approval of the transaction and the receipt of a fairness
opinion from the financial advisor, the Company executed the shareholder approved reverse/forward split.
The reverse/forward split transaction consisted of a 1-for-25 reverse stock split of the Company's outstanding common
stock, followed immediately by a 25-for-1 forward stock split. Shareholders who held less than 25 shares immediately prior to
the reverse stock split received a right to cash payment based on and equal to their resulting fractional interest times the price of
a share equal to the higher of (a) the trailing ten day average trading price of the Company’s common stock immediately
preceding the consummation date of the reverse/forward split or (b) the average aggregate sales price received in the sale on the
open market of the shares resulting from aggregation of the fractionalized interests. Shareholders that held 25 or more shares
72
of common stock immediately before the reverse/forward split did not receive a right to cash payment; instead these
shareholders continued to hold the same number of shares after completion of the reverse/forward split as they held
immediately prior. A description of the terms and conditions of the reverse/forward split was set forth in the Company’s
definitive Proxy Statement for the 2013 annual shareholders meeting filed with the U.S. Securities and Exchange Commission
on July 25, 2013.
The reverse/forward split resulted in approximately 643,218 of the Company’s outstanding shares being fractionalized.
Shareholders holding less than 25 shares of common stock immediately prior to the reverse split did not receive fractional
shares in the reverse stock split; instead these shareholders had their shares converted into the right to receive a cash payment in
exchange for and in proportion to the fractional share interests resulting from the reverse stock split. To fund the cash payment
due to shareholders that held a right to receive cash from the transaction, the fractional share interests were aggregated by the
Company’s transfer agent, who sold the aggregated shares in the open market following the execution of the transaction.
As of December 31, 2013, the Company completed the sales of the aggregated fractional shares from the reverse/forward
split in the open market and the sales proceeds of $13.6 million were held by the Company’s transfer agent in anticipation of
the payment to be made to the fractionalized shareholders and were included in Funds Held for Reverse/Forward Stock Split on
the Company’s balance sheet. As of December 31, 2013, the total amount payable of $13.7 million to fractionalized
shareholders as a result of the execution of the reverse/forward split was reflected as a Payable to Shareholders for Reverse/
Forward Stock Split on the Company’s balance sheet.
For the year ended December 31, 2015 and 2014, the Company’s retained earnings includes a total adjustment of
$102,000 and $344,000, respectively, related to the reverse/forward split, which includes transaction costs. During the year
ended December 31, 2014, the Company’s transfer agent issued checks amounting to $13.4 million to pay shareholders that
held a right to cash in exchange for the fractional shares that were a result of the reverse/forward split. The Company's transfer
agent intends to pay $137,000 due to the remaining shareholders that hold a right to cash after receiving the required
documentation regarding their physical stock certificates. As of December 31, 2015, the sale proceeds of $137,000 are held by
the Company’s transfer agent in anticipation of the payment to be made to the fractionalized shareholders and are included in
Prepaid expenses and other on the Company’s balance sheet. As of December 31, 2015, the total amount payable of $137,000
to fractionalized shareholders as a result of the execution of the reverse/forward split is included in Accrued expenses and other
on the Company’s balance sheet.
Note 12: Segment Reporting and Significant Customer Information
The Company manages its business geographically and has three reportable operating segments: Asia Pacific, Europe and
North America. Asia Pacific consists of the Company's operations in Australia, China, Hong Kong, Japan, Taiwan, and
Southeast Asia. Europe consists of the Company’s operations in France, Germany, Spain, and the U.K. North America consists
of the Company’s operations in Canada and the U.S.
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 Company’s segments.
The following is a summary of operating results and assets (in thousands) by business segment:
Year Ended December 31, 2015
Revenues from unaffiliated customers
Intersegment revenues
Total net revenues
Operating income (loss)
Year Ended December 31, 2014
Revenues from unaffiliated customers
Intersegment revenues
Total net revenues
Operating income (loss)
Asia Pacific
Europe
$
$
$
$
10,746
(63)
10,683
$
(2,435) $
42,588
(456)
42,132
3,871
Asia Pacific
Europe
$
$
$
$
11,160
(85)
11,075
$
(3,378) $
46,896
(921)
45,975
5,818
$
$
$
$
$
$
North
America
Other
Consolidated
88,382
$
— $ 141,716
519
88,901
—
—
— $ 141,716
5,710
$
— $
7,146
North
America
Other (a)
Consolidated
95,184
$
— $ 153,240
1,006
96,190
—
—
— $ 153,240
7,787
$
7,583
$
17,810
73
Year Ended December 31, 2013
Asia Pacific
Europe
North
America
Other (a)
Consolidated
Revenues from unaffiliated customers
Intersegment revenues
Total net revenues
Operating income (loss)
$
$
$
$
12,399
(326)
12,073
$
(1,444) $
46,279
(240)
46,039
$ 111,955
$
— $ 170,633
566
$ 112,521
—
—
— $ 170,633
7,836
$
16,769
$ (22,000) $
1,161
(a)
Amount related to unexchanged promotional shares that include a $7.6 million release of reserve and a $22.0 million
charge for the years ended December 31, 2014, and 2013, respectively.
As of December 31, 2015
Long-lived assets
Total assets
As of December 31, 2014
Long-lived assets
Total assets
Asia Pacific
Europe
$
$
369
5,845
$
$
899
54,452
Asia Pacific
Europe
$
$
491
3,510
$
$
1,507
40,818
North
America
Elimination
Consolidated
6,652
71,626
$
— $
$ (63,344) $
7,920
68,579
North
America
Elimination
Consolidated
7,678
73,508
$
— $
$ (24,529) $
9,676
93,307
$
$
$
$
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 years ended December 31, 2015, 2014 and 2013, the Company did not have any customers that accounted for
10% or more of revenue. As of December 31, 2015 and 2014, the Company had one customer that accounted for 15% and 10%,
respectively, of accounts receivable. Accounts receivable representing 10% or more of total accounts receivable was related to
an advertising technology company that assists us with our Search product traffic monetization by using an traffic auction
platform.
74
The following table sets forth the breakdown of revenues (in thousands) by category and segment. Travel revenue
includes travel publications (Top 20, Website, Newsflash, Travelzoo Network), Getaway vouchers and hotel booking platform.
Search revenue includes SuperSearch and Fly.com. Local revenue includes Local Deals vouchers and entertainment offers
(vouchers and direct bookings).
Asia Pacific
Travel
Search
Local
Total Asia Pacific revenues
Europe
Travel
Search
Local
Total Europe revenues
North America
Travel
Search
Local
Total North America revenues
Consolidated
Travel
Search
Local
Total revenues
Year Ended December 31,
2015
2014
2013
9,355
$
9,308
$
34
1,294
10,683
33,603
2,396
6,133
42,132
56,054
15,427
17,420
88,901
99,012
17,857
24,847
$
$
$
$
$
$
100
1,667
11,075
35,847
3,009
7,119
45,975
59,104
15,888
21,198
96,190
104,259
18,997
29,984
$
$
$
$
$
$
9,788
230
2,055
12,073
34,112
3,539
8,388
46,039
63,534
21,548
27,439
112,521
107,434
25,317
37,882
141,716
$
153,240
$
170,633
$
$
$
$
$
$
$
$
Revenue by geography is based on the billing address of the advertiser. Long-lived assets attributed to the U.S. and
international geographies are based upon the country in which the asset is located or owned.
The following table sets forth revenue for individual countries that exceed 10% of total revenue (in thousands):
Revenue
United States
United Kingdom
Rest of the world
Total revenues
Year Ended December 31,
2015
2014
2013
$
$
83,469
$
89,311
$
104,650
27,825
30,422
29,301
34,628
31,270
34,713
141,716
$
153,240
$
170,633
The following table sets forth long lived asset by geographic area (in thousands):
United States
Rest of the world
Total long lived assets
December 31,
2015
2014
$
$
6,167
1,753
7,920
$
$
7,646
2,030
9,676
75
Note 13: Related Party Transactions
On August 20, 2015, Travelzoo acquired the Travelzoo Asia Pacific business (“Asia Pacific”), which includes the
Travelzoo businesses in Australia, China, Hong Kong, Japan, Taiwan, and Southeast Asia. This business was independently
operated by Azzurro Capital Inc. ("Azzurro") under a licensing agreement with Travelzoo Inc. The Company held an option
right to acquire Asia Pacific at fair market value as determined by a third party valuation expert. Under the terms of the
definitive acquisition agreement, Travelzoo (Europe) Limited, a United Kingdom subsidiary of the Company, was authorized
by the Company to exercise the option right to acquire Asia Pacific for a fair market transaction value of $22.6 million, subject
to a working capital adjustment, using available cash of $17.0 million and a promissory note of $5.7 million with a maturity
date of three years.
The Company’s board of directors established a special committee (the “Special Committee”), consisting of independent
and disinterested directors and provided it with the exclusive power and authority to determine whether any potential
transaction to acquire Asia Pacific was advisable, fair to and in the best interests of the Company's stockholders other than
Azzurro Capital Inc., the principal stockholder of Travelzoo Inc. The Special Committee engaged independent legal counsel
and an independent financial advisor, Stout Risius Ross, Inc. (“SRR”). The Special Committee obtained the right to select its
own independent financial advisor, SRR, to independently determine the fair market value of Asia Pacific to be used as the
option exercise price and received an opinion from SRR regarding the fairness of the Asia Pacific transaction from a financial
point of view. SRR determined that $22.6 million represented the fair market value of Asia Pacific to be used as the option
exercise price based upon the use of established valuation methodologies. The Special Committee, which was composed solely
of independent and disinterested directors, unanimously approved the acquisition of Asia Pacific at the fair market value option
exercise price with the assistance of its independent legal and financial advisors.
Ralph Bartel, who founded Travelzoo and who is a Director of the Company is the sole beneficiary of the Ralph Bartel
2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. As of December 31, 2015, Azzurro is the Company's
largest stockholder, holding approximately 51.2% of the Company's outstanding shares.
Since Azzurro Capital Inc. had a controlling interest in both Travelzoo Inc. and the Travelzoo Asia Pacific business at the
time of the transaction and in prior periods, this transaction is accounted for as a common control transaction and a change in
reporting entity for the Company. The financial results for Travelzoo Inc. have been retrospectively adjusted to include the
financial results of Asia Pacific in the current and prior periods as though the transaction occurred at the beginning of each
period presented, including the following adjustments:
Revenue
Operating Loss
Net Loss
Other Comprehensive Income
Basic and diluted earnings per share
Year Ended December 31,
2015
2014
2013
$
$
$
$
$
10,774
$
(2,436) $
(3,096) $
305
$
(0.21) $
11,218
$
(3,382) $
(3,288) $
239
$
(0.22) $
12,402
(1,445)
(1,571)
89
(0.10)
The Asia Pacific assets and liabilities have been combined with Travelzoo Inc. at their carrying values as though the
transaction occurred at the beginning of each period presented. At December 31, 2015 and December 31, 2014, Asia Pacific net
liabilities, total assets minus total liabilities, were $6.8 million and $4.0 million, respectively.
The Asia Pacific transaction proceeds of $22.6 million were reflected as an equity transaction, included in retained
earnings, during the period the transaction occurred, which was in the year ended December 31, 2015.
Travelzoo (Europe) Limited, a United Kingdom subsidiary of the Company, acquired the Asia Pacific business, which
include certain customary seller indemnifications, through the acquisition of Travelzoo (Asia) Limited, including its wholly
owned subsidiaries, and Travelzoo Japan KK. All significant intercompany accounts and transactions between Travelzoo Inc.
and the acquired Asia Pacific entities have been eliminated for all periods presented.
In November 2014, Azzurro provided a loan to Asia Pacific of $1.0 million with a stated interest rate of 8%. There were
$1.0 million loans and $5,000 accrued interest due to Azzurro as of December 31, 2014. From January 1, 2015 to August 20,
2015, Azzurro provided loans to the Asia Pacific amounting to $2.2 million with a stated interest rate of 10%. In September
2015, the Company paid the due and outstanding principal loan amount of $3.3 million and accrued interest of $128,000.
76
On August 20, 2015, as part of the transaction proceeds Travelzoo (Europe) Limited issued a promissory note to Azzurro
with a principal amount of $5.7 million, with a maturity date of August 20, 2018 and the ability to pay off principal prior to this
maturity date with no prepayment penalty and a stated interest rate of 7% , which is due and payable on a quarterly basis.
Accrued interest for the loans and promissory note outstanding was $267,000 for the year ended December 31, 2015. In
January 2016, the full amount of the loan was paid off by Travelzoo (Europe) Limited.
On September 28, 2015, Holger Bartel, Executive Chairman and Chairman of the Board of Directors, was granted
400,000 stock options that vest through December 31, 2017 in connection with his appointment to the role of Global Chief
Executive Officer. See Note 9 to the accompanying consolidated financial statements for further information.
77
Note 14: Unaudited Quarterly Information
The following represents unaudited quarterly financial data (in thousands, except per share amounts) for 2015 and 2014:
Quarter Ended
Dec 31,
2015
Sep 30,
2015
Jun 30,
2015
Mar 31,
2015
Dec 31,
2014
Sep 30,
2014
Jun 30,
2014
Mar 31,
2014
$ 32,051
$ 33,728
$ 36,792
39,145
$ 34,291
$ 36,307
$ 39,599
$ 43,043
4,328
27,723
4,742
28,986
5,208
31,584
4,546
34,599
4,640
29,651
4,813
31,494
4,648
34,951
5,073
37,970
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
17,161
19,089
20,715
22,077
20,729
21,570
19,298
21,914
General and
administrative
Product Development
Unexchanged
promotional shares
Total operating
expenses
Income from operations
Other income (expense)
Income (loss) before income
tax
Income taxes
Net income (loss)
Basic net income (loss) per
share
Diluted net income (loss)
per share
$
$
$
976
(376)
600
165
435
0.03
0.03
6,270
3,316
6,120
2,917
5,335
3,206
6,451
3,089
7,603
2,956
7,220
3,108
7,139
2,786
7,040
2,476
—
—
—
—
(1,833)
(2,250)
(3,500)
—
26,747
28,126
29,256
31,617
29,455
860
(202)
2,328
(218)
2,982
(446)
196
(348)
29,648
1,846
95
658
(8,199)
8,857
0.60
0.60
$
$
$
2,110
1,268
842
0.06
0.06
$
$
$
$
$
$
2,536
1,806
730
0.05
0.05
$
$
$
(152)
(66)
(86) $
1,941
158
1,783
(0.01) $
0.12
(0.01) $
0.12
$
$
$
25,723
31,430
9,228
154
9,382
2,266
7,116
0.48
0.48
$
$
$
6,540
190
6,730
2,481
4,249
0.29
0.29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As of December 31, 2015, we carried out an evaluation, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer along with the Company’s 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). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are effective as of December 31, 2015 to ensure that
information required to be disclosed in the reports that the Company files or submits under the Exchange Act, including this
report, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and
forms, and to ensure that information required to be disclosed in such reports is accumulated and communicated to
management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, to allow timely
decisions regarding required disclosure. For these purposes, “disclosure controls and procedures” means controls and other
procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. “Disclosure controls and procedures” include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
78
Except set forth below, during the three months ended December 31, 2015, there were no changes in our internal control
over financial reporting (as defined in Exchange Act Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934) that
materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
During 2015, we made certain changes to our internal control over financial reporting related to our acquisition of the
Asia Pacific business, which we acquired in August 2015. These changes are subject to a Securities and Exchange Commission
allowed first-year exemption for acquired businesses. In addition, we made certain changes to internal control over financial
reporting related to our implementation of an updated accounting system.
Management’s Report on Internal Control Over Financial Reporting
Travelzoo’s management is responsible for establishing and maintaining adequate internal control over financial
reporting for Travelzoo Inc. Travelzoo’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. Travelzoo’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of Travelzoo; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Travelzoo are being made only in accordance with authorizations of
management and directors of Travelzoo; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of Travelzoo’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Travelzoo’s management assessed the effectiveness of Travelzoo’s internal control over financial reporting as of
December 31, 2015, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated Framework (2013). The assessment of the effectiveness of Travelzoo’s internal
control over financial reporting as of December 31, 2015 excluded the assessment of internal controls over financial reporting
related to the Travelzoo Asia Pacific business, which was acquired in August 2015, based upon a Securities and Exchange
Commission allowed first-year exemption for acquired businesses. Travelzoo Asia Pacific business’ total assets of $5.8 million
and total revenues of $10.8 million are included in the consolidated financial statements of Travelzoo Inc. as of and for the year
ended December 31, 2015. Based on the assessment by Travelzoo’s management, subject to the foregoing, Travelzoo
determined that its internal control over financial reporting was effective as of December 31, 2015. The effectiveness of
Travelzoo’s internal control over financial reporting as of December 31, 2015 has been audited by KPMG LLP, Travelzoo’s
independent registered public accounting firm, as stated in their report which appears in Part II, Item 8 of this Annual Report on
Form 10-K.
/s/ HOLGER BARTEL
Holger Bartel
Chairman of the Board and Global CEO
/s/ GLEN CEREMONY
Glen Ceremony
Chief Financial Officer
March 14, 2016
79
Item 9B. Other Information
Not applicable.
80
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated by reference to Travelzoo’s Definitive Proxy Statement for the 2016
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of Travelzoo’s fiscal year ended
December 31, 2015 and is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding executive compensation and compensation committee interlocks is incorporated by reference to
the information in the definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of our fiscal year ended December 31, 2015, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder matters
is incorporated by reference to the information in the definitive Proxy Statement relating to our 2016 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2015, which is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence is incorporated by
reference to the information set forth in the definitive Proxy Statement relating to our 2016 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2015, which is incorporated herein
by reference.
81
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services is set forth in the definitive Proxy Statement relating to our
2016 Annual Meeting of Stockholders, which is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report:
(1) Our Consolidated Financial Statements are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Supplementary Consolidated Financial Statement Schedules:
Page
51
52
53
54
55
56
57
All schedules are omitted because of the absence of conditions under which they are required or because the required
information is included in the consolidated financial statements or notes thereto.
(3) Exhibits:
See attached Exhibit Index
82
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
TRAVELZOO INC.
By:
/s/ GLEN CEREMONY
Glen Ceremony
Chief Financial Officer
Date: March 14, 2016
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints Glen Ceremony as his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities,
to sign any and all amendments to this Form 10-K, with all exhibits and any and all documents required to be filed with respect
thereto, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he or she might or could do if personally present, hereby ratifying and
confirming all that such attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title(s)
Date
/s/ HOLGER BARTEL
Holger Bartel
/s/ GLEN CEREMONY
Glen Ceremony
/s/ RALPH BARTEL
Ralph Bartel
/s/ MICHAEL KARG
Michael Karg
/s/ DONOVAN NEALE-MAY
Donovan Neale-May
/s/ MARY REILLY
Mary Reilly
/s/ BEATRICE TARKA
Beatrice Tarka
/s/ CAROLINE TSAY
Caroline Tsay
Chairman of the Board of Directors
and Global CEO
March 14, 2016
Chief Financial Officer and Principal
March 14, 2016
Accounting Officer
Director
Director
Director
Director
Director
Director
83
March 14, 2016
March 14, 2016
March 14, 2016
March 14, 2016
March 14, 2016
March 14, 2016
Exhibit
Number
3.1
3.2‡
3.3
10.1
10.2*
10.3
10.4
10.5
10.6
10.7*
10.8*
10.9*
—
—
—
—
—
—
—
—
—
—
—
—
EXHIBIT INDEX
Description
Certificate of Incorporation of Travelzoo Inc. (Incorporated by reference to
our Pre-Effective Amendment No. 6 to our Registration Statement on Form
S-4 (File No. 333-55026), filed February 14, 2002).
Certificate of Incorporation of Travelzoo Inc. and Certificates of Amendment
To the Certificate of Incorporation to Effect a Reverse Stock Split Followed
by a Forward Stock Split Of Travelzoo’s Common Stock.
By-laws of Travelzoo Inc. (Incorporated by reference to our Pre-Effective
Amendment No. 6 to our Registration Statement on Form S-4 (File No.
333-55026), filed February 14, 2002).
Form of Director and Officer Indemnification Agreement (Incorporated by
reference to Exhibit 10.1 on Form 10-Q (File No. 000-50171), filed
November 9, 2007)
Travelzoo Inc. North America Executive Bonus Plan as Amended and
Restated Effective January 1, 2007. (Incorporated by reference to Exhibit
10.1 on Form 8-K (File No. 000-50171), filed April 11, 2007)
Agreement of Lease, effective as of February 1, 2008, between Travelzoo
Inc. and 590 Madison Avenue, LLC (Incorporated by reference to Exhibit
10.1 on Form 8-K (File No. 000-50171), filed February 7, 2008)
Asset Purchase Agreement, dated September 30, 2009, by and among
Travelzoo Inc., Travelzoo K.K., Azzurro Capital Inc. and a buyer entity to be
designated by Azzurro Capital Inc., with Exhibits (Incorporated by reference
to Exhibit 10.1 on Form 8-K (File No. 000-50171), filed October 5, 2009)
Asset Purchase Agreement, dated September 30, 2009, by and among
Travelzoo Inc., Travelzoo (Asia Pacific) Limited, Azzurro Capital Inc. and a
buyer entity to be designated by Azzurro Capital Inc., with Exhibits
(Incorporated by reference to Exhibit 10.2 on Form 8-K (File No.
000-50171), filed October 5, 2009)
Option Agreement, dated September 30, 2009, between Travelzoo Inc. and
Azzurro Capital Inc. (Incorporated by reference to Exhibit 10.3 on Form 8-K
(File No. 000-50171), filed October 5, 2009)
Employment Agreement between Travelzoo Inc. and Christopher Loughlin
dated November 18, 2009 (Incorporated by reference to Exhibit 10.1 on
Form 8-K (File No. 000-50171), filed November 23, 2009)
Nonqualified Stock Option Agreement between Travelzoo Inc. and
Christopher Loughlin dated November 18, 2009 (Incorporated by reference
to Exhibit 10.2 on Form 8-K (File No. 000-50171), filed November 23,
2009)
Nonqualified Stock Option Agreement between Travelzoo Inc. and Glen
Ceremony dated January 23,2012 (Incorporated by reference to Exhibits
10.1 on Form 8-K (File No. 000-50171), filed March 30, 2012)
84
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21
10.22*‡
10.23*‡
10.24*‡
10.25*‡
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Nonqualified Stock Option Agreement between Travelzoo Inc. and Shirley
Tafoya dated January 23,2012 (Incorporated by reference to Exhibits 10.1 on
Form 8-K (File No. 000-50171), filed March 30, 2012)
Employment Agreement, dated August 4, 2011 between Shirley Tafoya and
Travelzoo Inc. (Incorporated by reference to Exhibit 10.1 on Form 10-Q
(File No. 000-50171), filed November 9, 2010)
Employment Agreement, dated May 9, 2011 between Glen Ceremony and
Travelzoo Inc. Form 8-K (File No. 000-50171), filed May 20, 2011)
Employment Agreement, dated October 1, 2011 between Holger Bartel and
Travelzoo Inc. (Incorporated by reference to Exhibit 10.1 on Form 10-Q
(File No. 000-50171), filed October 28, 2011)
Nonqualified Stock Option Agreement between Travelzoo Inc. and
Christopher Loughlin dated July 22, 2013.
Employment Agreement, amendment effective date January 1, 2013,
between Christopher Loughlin and Travelzoo Inc.
Employment Agreement, amendment effective date August 1, 2013, between
Christopher Loughlin and Travelzoo Inc.
Employment Agreement, amendment effective date January 1, 2013,
between Glen Ceremony and Travelzoo Inc.
Employment Agreement, amendment effective date January 1, 2013,
between Shirley Tafoya and Travelzoo Inc.
Employment Agreement, amendments effective dates July 1, 2012 and
January 1, 2013, between Richard Singer and Travelzoo Inc.
Separation Agreement and General Release, effective date December 13,
2014, between Shirley Tafoya and Travelzoo Inc.
Security Purchase Agreement, dated August 20, 2015, by and among
Travelzoo (Europe) Limited, and Travelzoo (Asia Pacific) Inc. with Exhibits
(Incorporated by reference to Exhibit 10.1 on Form 8-K (File No.
000-50171), filed August 26, 2015)
Employment Agreement, dated May 1, 2011, between Michael Stitt and
Travelzoo Inc.
Employment Agreement addendum, dated May 1, 2011, between Michael
Stitt and Travelzoo Inc.
Employment Agreement, dated September 30, 2015, between Michael Stitt
and Travelzoo Inc.
Separation Agreement and General Release, dated December 14, 2015,
between Simon Talling-Smith and Travelzoo Inc.
85
10.26*‡
10.27*‡
10.28*‡
10.29*‡
10.30*‡
21.1‡
23.1‡
24.1
31.1‡
31.2‡
32.1†
32.2†
101.INS†
101.SCH†
101.CAL†
101.DEF†
101.LAB†
101.PRE†
—
—
—
—
—
—
—
—
—
—
—
—
Separation Agreement and General Release, effective December 31, 2015,
between Christopher Loughlin and Travelzoo Inc.
Employment Agreement, dated June 7, 2014, between Vivian Hong and
Travelzoo Inc.
Employment Agreement, dated January 1, 2016, between Vivian Hong and
Travelzoo Inc.
Nonqualified Stock Option Agreement between Travelzoo Inc. and Mike
Stitt dated March 7, 2016.
Nonqualified Stock Option Agreement between Travelzoo Inc. and Richard
Singer dated March 7, 2016.
Subsidiaries of Travelzoo Inc.
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included on signature page)
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*
‡
†
This exhibit is a management contract or a compensatory plan or arrangement.
Filed herewith
Furnished herewith
86
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Investors Relations:
Travelzoo Inc.
ATTN: Investor Relations
590 Madison Avenue
37th Floor
New York, NY 10022
Web site:
www.travelzoo.com/ir