NASDAQ: TZOO
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TRAVELZOO
Table of Contents
Information About the Annual Meeting
Proposal 1—Election of Directors
Corporate Governance
Information About Executive Officers
Proposal 2—Approval of Option Grants to Chief Technology Officer and Global Head of Brand
Proposal 3—Advisory Vote to Approve Executive Compensation
Proposal 4—Approval of Amendment to the Company's Certificate of Incorporation to Authorize a Reduction of the
Authorized Number of Shares of Our Common Stock from 40,000,000 to 20,000,000 Shares
Executive Compensation
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
Appendix A
Appendix B
Appendix C
Page
1
6
8
12
13
15
16
18
25
26
27
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Travelzoo
590 Madison Avenue, 37th Floor
New York, NY 10022
April 1, 2019
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of Travelzoo on May 14, 2019. We will hold the
meeting at 800 W. El Camino Real, Suite 275, Mountain View, CA 94040, 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 2018 Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission on March 11, 2019, which is also enclosed. We encourage you to read
the Form 10-K.
Stockholders of record as of March 20, 2019 may vote at the Annual Meeting. This proxy statement or notice thereof is
first being mailed or furnished to stockholders on or about March 29, 2019.
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 590 Madison Avenue, 37th Floor, New York, NY 10022.
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 office, located at 800 W. El Camino Real, Suite 275, Mountain View,
CA 94040, U.S.A., 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,
RALPH BARTEL
Chairman of the Board
1
TRAVELZOO
590 Madison Avenue
37th Floor
New York, NY 10022
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 14, 2019
To the Stockholders of Travelzoo:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Travelzoo, a Delaware corporation, will be
held on Tuesday, May 14, 2019, at 10:00 a.m., local time, at 800 W. El Camino Real, Suite 275, Mountain View, CA 94040,
U.S.A., for the following purposes:
To elect five members of the Company's Board of Directors (the "Board"), each to serve until the 2020 Annual
Meeting of Stockholders and until their successors are elected and qualified or until their earlier resignation or
removal ("Proposal 1");
To vote to approve option grants to Chief Technology Officer and Global Head of Brand ("Proposal 2");
To vote, on an advisory basis, to approve executive compensation ("Proposal 3");
To vote to approve amendment to the Company's Certificate of Incorporation to authorize a reduction of the
authorized number of shares of our Common Stock from 40,000,000 to 20,000,000 shares ("Proposal 4"); 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 20, 2019 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
CHRISTINA SINDONI CIOCCA
Corporate Secretary
2
PROXY STATEMENT
FOR TRAVELZOO
2019 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 2019 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 20, 2019 (the "record date") will be entitled to notice of, and to vote at, the Annual Meeting. As of the
record date, there were 11,865,402 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 14, 2019 at 800 W. El Camino Real, Suite 275, Mountain
View, CA 94040, U.S.A. The meeting will begin at 10:00 a.m. local time.
What am I voting on?
Stockholders will vote on four items:
A proposal to elect five members of the Company's Board, each to serve until the 2019 Annual Meeting of
Stockholders and until their successors are elected and qualified or until their earlier resignation or removal
("Proposal 1");
A proposal to approve option grants to Chief Technology Officer and Global Head of Brand ("Proposal 2");
A proposal on an advisory basis to approve executive compensation ("Proposal 3"); and
A proposal to approve amendment to the Company's certificate of incorporation to authorize a reduction of the
authorized number of shares of our Common Stock from 40,000,000 to 20,000,000 shares ("Proposal 4"); 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, Proposal 3 and Proposal 4.
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, Proposal 3 and Proposal 4. 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, Attention: Corporate Secretary, 590 Madison Avenue, 37th
Floor, New York, NY 10022, 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,
the approval of Proposal 4 and, by an advisory vote, the approval 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, the Chairman of our Board, holds an aggregate of
5,945,000 shares of our Common Stock, representing approximately 50.1% the outstanding shares, as of March 20, 2019.
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, 3 and 4 are considered "non-routine".
Broker non-votes will not have any effect with respect to Proposals 1, 2, 3 and 4, 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 Annual 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.
5
PROPOSAL 1—ELECTION OF DIRECTORS
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 2020 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 2020:
The ages, principal occupations, directorships held and other information as of March 20, 2019, with respect to our
nominees are described below.
Name
Ralph Bartel, Ph.D., Ph.D.
Christina Sindoni Ciocca
Carrie Liqun Liu (1) (3)
Mary Reilly (1) (2) (3) (4)
Beatrice Tarka (1) (2) (4)
Age
53
31
37
65
47
Position
Chairman of the Board
Counsel
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, other than Ms. Christina Sindoni Ciocca, is currently a director of
Travelzoo and was previously elected by the shareholders. Mr. Ralph Bartel, Ms. Carrie Liqun Liu, Ms. Mary Reilly and Ms.
Beatrice Tarka were elected directors of Travelzoo at the Company's Annual Meeting of Stockholders held on May 15, 2018.
Our Board of Directors has determined that each of Ms. Liu, Ms. Reilly and Ms. Tarka 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 50.1% of our outstanding Common Stock as of March 20, 2019.
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 the Chairman of the Board of Directors since May 2017, and 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.
Christina Sindoni Ciocca, has been Counsel for Travelzoo since April 2018. Prior to joining Travelzoo, Ms. Ciocca
was an attorney at Sidley Austin LLP, practicing in mergers & acquisitions in both Chicago, IL and New York, NY, from
September 2014 to March 2018. Ms. Ciocca earned her juris doctor degree from the Law School of the University of Notre
Dame and a Bachelor of Science in Economics degree from the Wharton School of the University of Pennsylvania, with
concentrations in marketing and operations & information management.
Areas of Ms. Ciocca’s relevant experience include corporate governance, business law, mergers & acquisitions and
marketing.
6
Carrie Liqun Liu, is the General Manager of the Private Equity Business at Tianhong, a prominent fund management
company in China. From July 2011 to May 2017, Ms. Liu was the Executive Director of Fosun China Momentum Fund. From
May 2009 to July 2011, she was a senior investment professional at Henderson Equity Partners. From 2015 to 2016, she was a
member of the board of directors and audit committee of Tom Tailor Holding AG, and also a member of the board of directors
of Cirque du Soleil, an entertainment company. Ms. Liu holds a bachelor’s degree in finance and master’s degree in law from
Tsinghua University in Beijing, China.
Areas of Ms. Liu’s relevant experience include Asian markets, investments, finance and global strategy.
Mary Reilly has been a member of Travelzoo's Board of Directors since September 2013. From 2002 to 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
has been a member of the board of directors of Mitie plc since 2017, of Essentra plc since 2017, and a member of the board of
directors and the chair of the audit committee for Ferrexpo plc since 2015. From 2013 to 2018, she was the chair of the audit
and risk committee for the Department of Transport Board in the United Kingdom. From 2017 to 2018, she was a member of
the board of directors and the chair of the audit and risk committee for Crown Agents Ltd. From 2016 to 2017, she was a
member of the board of directors and of the audit committee for Cape plc. 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 UK.
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.
Areas of Ms. Tarka’s relevant experience include entrepreneurship, strategic partnerships, international business and
innovative online product development.
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 five 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 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF THE FIVE DIRECTOR NOMINEES NAMED ABOVE.
7
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 2018. Each board member 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 served.
Name
Mr. Ralph Bartel
Ms. Rachel Barnett
Ms. Carrie Liqun Liu
Ms. Mary Reilly
Ms. Beatrice Tarka
Number of 2018 Meetings
Board
Chair
Member
Member
Member
Member
4
Audit
Compensation
Disclosure
Nominating
and
Corporate
Member
Chair
Member
4
Chair
Member
1
Member
Chair
4
Chair
Member
—
The Company does not require that directors attend the Annual Meeting.
Audit Committee
The Audit Committee is appointed by the Board to discharge the Board’s responsibilities with respect to (i) the
Company’s accounting and financial reporting processes; (ii) audits of the financial statements of the Company; and (iii) the
qualifications, independence and performance of the Company’s independent auditors. A complete description of the Audit
Committee's responsibilities is set forth in its written charter. A copy of the Amended and Restated Audit Committee Charter,
which was adopted by the Board on March 22, 2019, can be found in Appendix A to this 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 Stock Market, the SEC, the Sarbanes-Oxley Act of
2002 and any successor rules or regulations. The Board has determined that Ms. Mary Reilly qualifies as an audit committee
financial expert within the meaning of SEC regulations.
Compensation Committee
The Compensation Committee is appointed by the Board to discharge the Board’s responsibilities with respect to the
evaluation, approval and administration of the Company’s compensation and incentive plans, policies and programs for
executive officers and directors of the Company. A complete description of the Compensation Committee’s responsibilities is
set forth in its written charter. A copy of the Compensation Committee Charter, which was adopted by the Board on March 22,
2019, can be found in Appendix B to this proxy statement.
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.
8
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 executive officers, including our Global Chief Executive Officer,
our Chief Financial Officer, our Principal Accounting Officer, and our Chief Technology 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, 590
Madison Avenue, 37th Floor, New York, NY 10022.
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 director or
any group or committee of directors, correspondence should be addressed to the Board of Directors or any such individual
director or group or committee of directors by either name or title. All such correspondence should be sent "c/o Corporate
Secretary" at Travelzoo, 590 Madison Avenue, 37th Floor, New York, NY 10022.
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.
Director Compensation
Directors of the Company or its subsidiaries are entitled to receive certain retainers and fees. In 2018, there were no
adjustments to the director compensation policy. The retainers and meeting fees are as follows:
Description
Annual retainer for each Board member
Annual retainer for Audit Committee Chair
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
9
Fee Earned ($)
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 and Ms. Rachel Barnett chose not to receive any director compensation. The following table shows
compensation information for Travelzoo’s directors for the fiscal year ended December 31, 2018.
Name
Mr. Ralph Bartel
Ms. Rachel Barnett
Ms. Carrie Liqun Liu
Ms. Mary Reilly
Ms. Beatrice Tarka
Fees Earned
or Paid in
Cash ($)
—
—
74,640
107,440
70,720
Total ($)
—
—
74,640
107,440
70,720
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 executive officers, including our Global Chief Executive Officer, Chief Financial Officer, Principal
Accounting Officer, and Chief Technology 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.
Our General Counsel and/or Chief Financial Officer and/or Principal Accounting Officer review(s) all material related
party transactions. When a potential related party transaction is identified, the General Counsel and/or the Chief Financial
Officer and/or Principal Accounting 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”). The Audit Committee charter states that the Audit Committee has the duty and responsibility to review and
approve in advance, to the extent possible, any proposed related party transactions and potential conflict of interest situations
involving a director or director nominee of the Company, an executive officer of the Company, any person or entity known by
the Company to be a beneficial owner of more than 5% of the Company’s Common Stock, or any person known by the
Company to be an immediate family member of any of the foregoing; provided, that the Audit Committee shall have the
authority to ratify certain related party transactions if approval of such transactions in advance is not practicable or possible, in
the sole discretion of the Committee. A copy of the written charter can be found in Appendix A to this proxy statement. 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 20, 2019, Azzurro is the
Company's largest stockholder, holding approximately 50.1% of the Company's outstanding shares.
Family Relationships
Ralph Bartel, Chairman of the Board of Directors and Holger Bartel, Global Chief Executive Officer, are brothers.
Except for Holger Bartel and Ralph Bartel, there are no familial relationships among any of our officers and directors.
10
Involvement in Certain Legal Proceedings
To our knowledge, during the last ten years, none of our directors and executive officers have: (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 or her 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.
11
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the executive officers of Travelzoo as of March 20,
2019.
Name
Holger Bartel, Ph.D.
Michael Peterson
Lisa Su
Age
52
61
43
Position
Global Chief Executive Officer
Chief Technology Officer
Principal Accounting Officer
Holger Bartel, Ph.D., has been Travelzoo's Global Chief Executive Officer since January 2016. From July 2010 to
May 2017, he was the Chairman of the Board of Directors. From October 2011 to October 2013, he was the 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.
Michael Peterson, has been Travelzoo’s Chief Technology Officer since June 2018. From 2016 to 2018, Mr. Peterson
served as Advisory Research and Development Lead to Neustar, Advisory Chief Technology Officer at Parkar Consulting &
Lab and Advisory Chief Data Strategist at xSCION. From 2005 to 2016, he served as Vice President of Platforms and the
technology executive under the Chief Technology Officer of Neustar. Prior to that, he served in various technical roles. Mr.
Peterson attended Appalachian State University.
Lisa Su, the Company's Principal Accounting Officer, has been with Travelzoo since May 2011 and previously served
as the Company's Vice President and Controller. Prior to May 2011, Ms. Su was the Controller of YuMe from June 2009. Prior
to June 2009, Ms. Su was Controller of Travelzoo and prior to this role she performed various other accounting roles at
Travelzoo since she started at Travelzoo in October 2000. Ms. Su holds an MBA in finance from California State University,
East Bay and a bachelor's degree in economics-accounting from Claremont McKenna College.
12
PROPOSAL 2—APPROVAL OF OPTION GRANTS TO CHIEF TECHNOLOGY OFFICER AND GLOBAL HEAD
OF BRAND
Option Agreement with Chief Technology Officer
On June 22, 2018, Travelzoo entered into a Nonqualified Stock Option Agreement (the “Peterson Option Agreement”)
with Michael Peterson, Chief Technology Officer, pursuant to which the Company granted Mr. Peterson the option to purchase
up to 50,000 shares of the Company’s Common Stock (such option being hereinafter referred to as the “Option”), subject to
stockholder approval. The following discussion is qualified in its entirety by the full text of the Peterson Option Agreement,
which is incorporated by reference to Exhibit 10.23 on Form 8-K, filed June 28, 2018.
Exercisability of the Option
The exercise price of the Option is $16.65 per share. The Option is expected to vest over four years in equal installments
of 25% on June 22, 2019, June 22, 2020, June 22, 2021, and June 22, 2022. The Option cannot be exercised after the expiration
of five (5) years from the date of grant, which is the term of the Option.
Exercise of the Option
Mr. Peterson 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.
Adjustment of the Option
As is customary in stock option agreements of this nature, the number of shares subject to the Option and the exercise
price of the Option 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. Peterson other than by will or the laws of descent and distribution and may be
exercised during Mr. Peterson’s lifetime only by himself or his guardian or legal representative.
Effect of Termination of Employment
If Mr. Peterson'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. Peterson (or, in the event of his death, his legatee(s) under his
last will, or his personal representatives or distributes) may exercise such portion of the Option for a period of ninety (90)
days following such termination, but in no event after June 22, 2023.
Personal Interest
Mr. Peterson is Travelzoo's Chief Technology Officer.
Option Agreement with Global Head of Brand
On May 14, 2018, Travelzoo entered into a Nonqualified Stock Option Agreement (the “Sun Option Agreement” and,
together with the Peterson Option Agreement, the “Option Agreements”) with Sharry Sun, Global Head of Brand, pursuant to
which the Company granted Ms. Sun the option to purchase up to 50,000 shares of the Company’s Common Stock (such option
being hereinafter referred to as the “Option”), subject to stockholder approval. The following discussion is qualified in its
entirety by the full text of the Sun Option Agreement, which is incorporated by reference to Exhibit 10.20 on Form 8-K, filed
May 18, 2018.
13
Exercisability of the Option
The exercise price of the Option is $14.70 per share. The Option is expected to vest over four years in equal installments
of 25% on May 14, 2019, May 14, 2020, May 14, 2021, and May 14, 2022. The Option cannot be exercised after the expiration
of ten (10) years from the date of grant, which is the term of the option.
Exercise of the Option
Ms. Sun 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 Ms. Sun, 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 the exercise
price of the Option 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 Ms. Sun other than by will or the laws of descent and distribution and may be exercised
during Ms. Sun’s lifetime only by herself or her guardian or legal representative.
Effect of Termination of Employment
If Ms. Sun’s employment with the Company is terminated, including in the event of her 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, Ms. Sun (or, in the event of her death, her legatee(s) under her last will,
or her personal representatives or distributes) may exercise such portion of the Option for a period of ninety (90) days following
such termination, but in no event after May 19, 2028.
Personal Interest
Ms. Sun is Travelzoo's Global Head of Brand.
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.
14
PROPOSAL 3—ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
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 section entitled “Executive Compensation” 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 portion of our total compensation in the form of performance-based compensation; for example,
approximately 0% to 13% of our named executive officers' total compensation for 2018 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 2019 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.
15
PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO
AUTHORIZE A REDUCTION OF THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 40,000,000 TO
20,000,000 SHARES
Overview
The Company’s Certificate of Incorporation, as amended, currently provides that 40,000,000 shares of Common Stock are
authorized for issuance. The Board has unanimously approved and recommends to our stockholders for approval, an amendment to our
Certificate of Incorporation, as amended, to decrease the authorized number of shares of Common Stock. The proposed amendment would
reduce the authorized Common Stock to 20,000,000 shares. There would be no change in the rights attributable to the authorized shares of
Common Stock. The proposed amendment will not affect the par value of the Common Stock, which will remain at $0.01 per share. The
reduction in the number of shares of authorized Common Stock would not have any impact on the authorized preferred stock (the
“Preferred Stock”), the total number of authorized shares of which would remain at 5,000,000 in any event.
The Board reserves the right to elect not to proceed with this proposed amendment to our Certificate of Incorporation if, at any
time prior to its filing, the Board, in its sole discretion, determines that it is no longer in the Company’s best interests or the best interests of
the stockholders to decrease our authorized number of shares of Common Stock.
The proposed amendment to our Certificate of Incorporation to decrease the number of authorized shares of Common Stock is
substantially in the form set forth in Appendix C to this proxy statement. The following discussion is qualified in its entirety by the full text
of the proposed amendment, which is incorporated herein by reference.
Reasons for Decrease in Authorized Shares of Common Stock
Our Board has determined that the proposed decrease in the authorized number of shares of our Common Stock is in the
Company’s and the stockholders’ best interests because the Company believes it will reduce Company expenses. The Company believes
that 20,000,000 shares of common stock, plus the 5,000,000 shares of Preferred Stock that is currently authorized, are sufficient to meet its
needs for employee equity incentives, the maintenance of appropriate reserves or other corporate purposes as may be deemed by the Board
of Directors to be in the best interest of the Company and its stockholders from time to time.
Additionally, the proposed reduction in our authorized Common Stock may enable us to reduce the amount of the Company’s
annual franchise tax in the State of Delaware. Each year, we are required to make franchise tax payments to the State of Delaware in an
amount determined, in part, by the total number of shares of stock we are authorized to issue. Accordingly, by reducing the number of
authorized shares of Common Stock, we may be able to reduce the amount of the franchise tax for which we will be liable.
Certain Risks and Potential Disadvantages Associated with the Decrease in Authorized Common Stock
The proposed decrease in the authorized number of shares of our Common Stock could have an adverse effect on us because the
Board will have less ability to issue shares of Common Stock in connection with a potential merger or acquisition, or capital raising
transaction. Authorized but unissued shares of our Common Stock (and Preferred Stock) are available for future issuance as may be
determined by our Board without further action by our stockholders, unless stockholder approval is required by applicable law or securities
exchange listing requirements in connection with a particular transaction. These additional shares may be issued in the future for a variety
of corporate purposes including, but not limited to, raising additional capital, corporate acquisitions and equity incentive plans. Future
issuances of shares of Common Stock (or Preferred Stock) could have the effect of making it more difficult for a third party to acquire
control of our Company. In addition, the issuance of additional shares, or the perception that additional shares may be issued could also
adversely affect the market price of our Common Stock.
Effective Time of Decrease in Authorized Shares of Common Stock
Following stockholder approval of this Proposal 4, the decrease in authorized shares of Common Stock would become effective
upon the filing of a certificate of amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware, or
such later effective time as is specified in such certificate of amendment as permitted under Delaware law. The exact timing of the
amendment will be determined by our Board based on its evaluation as to when such action will be the most advantageous to us and our
stockholders. Our Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect
not to proceed with the amendment to decrease the authorized number of shares if, at any time prior to filing the amendment to our
Certificate of Incorporation, our Board, in its sole discretion, determines that it is no longer in our best interests or the best interests of our
stockholders to decrease the authorized number of shares of Common Stock.
If the amendment is filed, at the effective time of the amendment, shares of our Common Stock authorized for issuance will
be decreased to 20,000,000 shares. There will be no change to the number of shares of authorized Preferred Stock.
16
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE
APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO DECREASE THE AUTHORIZED
NUMBER OF SHARES OF OUR COMMON STOCK FROM 40,000,000 TO 20,000,000 SHARES.
17
EXECUTIVE COMPENSATION
We hold annual votes on executive compensation, in accordance with shareholder recommendations made at the 2018
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 Executive Compensation describes our overall compensation philosophy and the primary components
of our compensation program. Furthermore, the Executive Compensation explains the process by which the Compensation
Committee, or "Committee", determined the 2018 compensation for our Global 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
included Ms. Mary Reilly and Ms. Beatrice Tarka. Ms. Reilly and Ms. Tarka satisfied the independence requirements of the
NASDAQ.
Role of Management. During 2018, 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 Global 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. 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 Global 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 Global 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.
The Committee did not engage an outside consulting firm to provide advice on executive compensation.
18
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 2018: (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 established a base salary for Mr. Michael Peterson as shown in on the Summary Compensation Table
based upon his duties and responsibilities as Chief Technology Officer and did not make any other change to base salaries of its
other named executive officers in 2018.
Incentive Bonus Pay
Pursuant to the terms of Ms. Su's employment agreement dated February 16, 2011, effective May 2, 2011, Ms. Su is
eligible to receive a quarterly performance bonus for each quarter during 2018.
The quarterly performance bonus is calculated based upon North America Local revenue and operating income for the
first and second quarters of 2018 and on worldwide revenue and operating income and audience targets for the third and fourth
quarter of 2018. The revenue bonus is calculated based upon achievement of the target resulting in a potential and maximum
bonus of $12,500. The operating income bonus is calculated based upon achievement of the target resulting in a potential and
maximum bonus of $12,500. The audience bonus is calculated based upon achievement of certain audience targets resulting in a
potential and maximum bonus of $12,500. The total maximum performance bonus per quarter for the revenue, operating
income and audience components combined is $25,000 for the first and second quarters of 2018 and $37,500 or the third and
fourth quarter of 2018.
Ms. Su earned a quarterly bonus for revenue for the first and second quarters and for operating income for the first and
second quarter of 2018. Ms. Su received performance bonuses totaling $50,000 during 2018. For 2018, Ms. Su received 40% of
the maximum performance bonus. The Company believes that targets set for worldwide revenue, operating income and
audience targets align with the Company's desire to continue to grow the business.
Ms. Su also received a discretionary bonus determined by the Chief Financial Officer for the first, second and third
quarters of 2018 and Compensation Committee for the fourth quarter of 2018, in their sole and absolute discretion. In
exercising such discretion, the Chief Financial Officer and Compensation Committee takes into consideration Ms. Su's
individual performance. In evaluating Ms. Su’s individual performance during 2018, the Chief Financial Officer and
Compensation Committee considered factors such as Ms. Su’s leadership role in areas of corporate governance and business
ethics, and financial management. Ms. Su received a discretionary bonus totaling $43,750 for 2018.
Pursuant to the terms of Mr. Peterson's employment agreement dated June 22, 2018, Mr. Peterson is eligible to receive
a quarterly performance bonus commenced from his starting date.
The quarterly performance bonus is calculated based upon worldwide 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 $12,500.
The operating income bonus is calculated based upon achievement of the target resulting in a potential and maximum bonus of
$12,500. The audience bonus is calculated based upon achievement of certain audience targets resulting in a potential and
maximum bonus of $12,500. The total maximum performance bonus per quarter for the revenue, operating income and
audience components combined is $37,500. Mr. Peterson did not earn quarterly bonus for 2018.
Mr. Peterson received a discretionary bonus determined by the Global Chief Executive Officer at his sole and absolute
discretion. In exercising such discretion, the Global Chief Executive Officer takes into consideration Mr. Peterson's individual
performance. Mr. Peterson received a discretionary bonus totaling $27,474 for 2018.
19
Pursuant to the terms of Mr. Ceremony's employment agreement dated May 9, 2011, effective June 15, 2011 and as
amended March 9, 2017, Mr. Ceremony is eligible to receive a quarterly performance bonus for each quarter during 2018.
The quarterly performance bonus is calculated based upon worldwide 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 $16,667.
The operating income bonus is calculated based upon achievement of the target resulting in a potential and maximum bonus of
$16,667. The audience bonus is calculated based upon achievement of certain audience targets resulting in a potential and
maximum bonus of $16,666. The total maximum performance bonus per quarter for the revenue, operating income and
audience components combined is $50,000.
Mr. Ceremony earned a quarterly bonus for revenue and operating income for the first quarter of 2018. Mr. Ceremony
received performance bonuses totaling $33,334 during 2018. For 2018, Mr. Ceremony received 17% of the maximum
performance bonus. The Company believes that targets set for worldwide revenue, operating income and audience targets align
with the Company's desire to continue to grow the business.
Mr. Ceremony also received a discretionary bonus determined by the Global Chief Executive Officer at his sole and
absolute discretion. In exercising such discretion, the Global Chief Executive Officer takes into consideration Mr. Ceremony's
individual performance. In evaluating Mr. Ceremony’s individual performance during 2018, the Global Chief Executive Officer
considered factors such as Mr. Ceremony’s leadership role in areas of corporate governance and business ethics, and financial
management. Mr. Ceremony received a discretionary bonus totaling $33,335 for 2018.
Pursuant to the terms of Ms. Barnett's employment agreement dated July 30, 2013, as amended May 22, 2017,
Ms. Barnett did not qualify for discretionary bonus in 2018.
Other Compensation-Related Matters
The Company grants 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 certain executive staff, 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 May 2018, the Company granted Ms. Sharry Sun stock options to purchase 50,000 shares of Common Stock with
an exercise price of $14.70, which vests in four equal annual installments over a four-year period ending May 14, 2022, subject
to stockholder approval. The Compensation Committee and Board of Directors considered Ms. Sun's duties and responsibilities
as Global Head of Brand.
In June 2018, the Company granted Mr. Michael Peterson stock options to purchase 50,000 shares of Common Stock
with an exercise price of $16.65, which vests in four equal annual installments over a four-year period ending June 22, 2022,
subject to stockholder approval. The Compensation Committee and Board of Directors considered Mr. Peterson's duties and
responsibilities as Chief Technology Officer.
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 certain executive staff,
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.
20
Summary Compensation Table
The following summary compensation table sets forth information concerning the compensation to our Global Chief
Executive Officer, Principal Accounting Officer, Chief Technology Officer, former Chief Financial Officer and former General
Counsel during the fiscal years ended December 31, 2018 and 2017.
Name and Principal Position
Holger Bartel (1)
Global Chief Executive Officer
Fiscal
Year
2018
2017
Salary ($)
Bonus
($) (a)
Option
Awards
($) (b)
Non-Equity
Incentive Plan
Compensation
($) (c)
All Other
Compensation
($) (d)
Total ($)
232,000
142,472
—
—
— 1,242,400
—
—
—
232,000
90,073
1,474,945
Lisa Su (2)
2018
241,020
43,750
—
50,000
6,299
341,069
Principal Accounting Officer
Michael Peterson (3)
2018
183,750
27,474
404,750
—
1,500
617,474
Chief Technology Officer
Glen Ceremony (4)
Former Chief Financial Officer
2018
2017
388,353
470,000
33,335
62,502
—
—
33,334
50,000
1,500
4,036
456,522
586,538
Rachel Barnett (5)
2018
350,000
— 241,650
Director and former General
Counsel
2017
316,945
20,685
—
—
—
3,741
595,391
3,846
341,476
Notes to the Summary Compensation Table
(1) Mr. Holger Bartel's annual salary is $232,000 for his role as Global Chief Executive Officer.
(2) Ms. Su was appointed as the Company's Principal Accounting Officer on October 26, 2018.
(3) Mr. Peterson joined the Company on June 22, 2018, his annual salary is $350,000.
(4) Mr. Ceremony's annual salary is $470,000. Mr. Ceremony resigned from the Company on October 26, 2018.
(5) Ms. Barnett's annual salary is $350,000. Ms. Barnett resigned from the Company on February 20, 2019.
21
(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 8 to the consolidated financial statements contained in our 2018 Annual Report on Form 10-K
filed on March 11, 2019.
(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 Executive Compensation 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 fee paid to him in his role as Chairman of the
Board through May 22, 2017. Other compensation for Ms. Su, Mr. Peterson, Mr. Ceremony and Ms. Barnett
represents $1,500 Company matching 401(k) plan contribution and bonus payments made to eligible employees.
Grants of Plan-Based Awards in 2018
The following table sets forth certain information with respect to non-equity incentive plan awards granted to each of
our named executive officers during the fiscal year ended December 31, 2018.
Name (1)
Holger Bartel
Lisa Su
Michael Peterson
Glen Ceremony
Rachel Barnett
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards
Target
($)
Maximum
($)
Threshold
($)
—
150,000
150,000
200,000
—
—
150,000
150,000
200,000
—
—
150,000
150,000
200,000
—
(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 section
entitled, “Executive Compensation”.
Outstanding Equity Awards at December 31, 2018
The following table sets forth certain information with respect to outstanding equity awards at December 31, 2018 for
each of our named executive officers as of March 20, 2019.
Name
Holger Bartel (1)
Lisa Su
Michael Peterson (2)
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($)
Option Expiration Date
400,000
200,000
—
—
—
200,000
—
50,000
8.07
6.95
—
16.65
September 28, 2025
October 30, 2027
—
June 22, 2023
(1) The options are exercisable in quarterly increments of 12.5% from March 31, 2018 through December 31, 2019.
(2) The options are exercisable in annual increments of 25% from June 22, 2019 through June 22, 2022.
22
Option Exercises and Stock Vested
During the year ended December 31, 2018, there were no options exercised by any of our named executive officers. At
December 31, 2018, 200,000 shares of Mr. Holger Bartel's stock options were vested.
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, 2018 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 and his role as Global Chief Executive Officer, in September 2015 and October 2017, the
Company provided stock option grants to Mr. Holger Bartel to purchase 400,000 shares of the Company’s Common Stock for
each grant. The Company may terminate the employment agreement, with or without cause, upon written notice to Mr. Holger
Bartel. However, if Mr. Holger Bartel's employment is terminated at any time without cause, Mr. Holger Bartel's stock options
to purchase a cumulative 800,000 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.
Ms. Su entered into an employment agreement with the Company on May 2, 2011. Pursuant to the terms of the
agreement, Ms. Su is an at-will employee meaning the Company or Ms. Su could terminate the agreement at any time, with or
without cause, upon two weeks' prior notice to the other party. However, if Ms. Su 's employment is terminated at any time
without cause, Ms. Su will be entitled to receive her base salary for a six month period in exchange for executing a general
release of claims as to the Company. Assuming that Ms. Su was terminated by the Company as of December 31, 2018 without
cause, Ms. Su would have been entitled to receive $120,510. If Ms. Su's employment is terminated at any time due to a change
of control (as defined in the agreement) or if she is not offered a position of comparable pay and responsibilities in the same
geographic area in which she worked immediately prior to a change of control, Ms. Su will be entitled to receive her 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 Ms. Su was terminated by the Company as of December 31, 2018 following a change of control of the Company, Ms. Su
would have been entitled to receive $120,510 and the Company would incur additional expenses for medical benefits of
approximately $4,674.
Ms. Su agreed that the Company will own any discoveries and work product (as defined in the agreement) made
during the term of her employment and to assign all of her interest in any and all such discoveries and work product to the
Company. Furthermore, Ms. Su agreed to not, directly or indirectly, solicit the Company's customers or employees during the
term of her employment and for a period of one year thereafter.
Mr. Peterson entered into an employment agreement with the Company on June 22, 2018. Pursuant to the terms of the
agreement, Mr. Peterson is an at-will employee meaning the Company could terminate the agreement at any time, with or
without cause, upon two weeks' prior notice to Mr. Peterson. Mr. Peterson could terminate the agreement at any time, with or
without cause, upon four weeks' prior notice to the Company. However, if Mr. Peterson's employment is terminated at any time
without cause, Mr. Peterson 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. Peterson was terminated by the Company as of December 31, 2018
without cause, Mr. Peterson would have been entitled to receive $175,000. If Mr. Peterson'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. Peterson 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. Peterson was terminated by the Company as of December 31, 2018 following a change of control
of the Company, Mr. Peterson would have been entitled to receive $175,000.
Mr. Peterson 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. Peterson 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.
23
Mr. Ceremony entered into an employment agreement with the Company on June 15, 2011. Pursuant to the terms of
the agreement, Mr. Ceremony was an at-will employee, meaning the Company or Mr. Ceremony could terminate the agreement
at any time, with or without cause, upon three months’ prior notice to the other party. However, if Mr. Ceremony's
employment was terminated by the Company at any time without cause, Mr. Ceremony would be entitled to receive his base
salary for a six month period in exchange for executing a general release of claims in favor of the Company. Mr. Ceremony
resigned from the Company on October 26, 2018.
Ms. Barnett entered into an employment agreement with the Company on July 30, 2013. Pursuant to the terms of the
agreement, Ms. Barnett was an at-will employee, meaning the Company or Ms. Barnett could terminate the agreement at any
time, with or without cause, upon six weeks’ prior notice to the other party. However, if Ms. Barnett's employment was
terminated at any time without cause by the Company, Ms. Barnett would be entitled to receive her base salary for a three
month period in exchange for executing a general release of claims in favor of the Company. If Ms. Barnett's employment was
terminated at any time due to a change of control (as defined in the agreement) or if she was not offered a position of
comparable pay and responsibilities in the same geographic area in which she worked immediately prior to a change of control,
Ms. Barnett would have been entitled to receive her base salary and medical benefits for a six month period in exchange for
executing a general release of claims in favor of the Company. Ms. Barnett resigned from the Company on February 20, 2019.
Forward-Looking Statements
Disclosures in this section entitled “Executive Compensation”. 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.
24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the amount of our Common Stock beneficially owned as of March 20, 2019 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 20, 2019, 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 Executive Officers
Ralph Bartel (3)
Holger Bartel
Rachel Barnett
Christina Sindoni Ciocca
Carrie Liqun Liu
Mary Reilly
Michael Peterson
Lisa Su
Beatrice Tarka
Directors and executive officers as a group (9 persons)
* Persons Owning More Than 5% of Common Stock
Beneficial Ownership
Number of
Shares (1)
Percent of
Total (2)
5,945,000
650,000
—
—
—
—
—
—
—
50.10%
5.48%
—
—
—
—
—
—
—
6,595,000
55.58%
(1) Represents shares subject to stock options that are exercisable on March 20, 2019 or become exercisable within 60 days of
March 20, 2019. 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 11,865,402 shares of Common Stock outstanding as of
March 20, 2019, plus the number of shares of Common Stock that such person or group had the right to acquire within 60
days after March 20, 2019.
(3) Ralph Bartel indirectly holds a controlling interest of Azzurro Capital Inc., which is the holder of 5,945,000 shares, through
the Ralph Bartel 2005 Trust.
25
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 2018, all Section 16(a) filing requirements were satisfied on a
timely basis.
26
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Public Accountants
PricewaterhouseCoopers LLP (“PwC”) served as Travelzoo's independent registered public accounting firm for our 2018
and 2017 fiscal years. The Audit Committee has not yet selected our independent registered public accounting firm for our 2019
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. PwC 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.
Principal Accountant Fees and Services
The audit fees charged by PwC for 2018 and the audit fees for 2017 charged by PwC and KPMG LLP ("KPMG") for
services rendered to Travelzoo are as follows:
Service
Audit fees (1)
Audit-related fees
Tax fees
All other fees
Total
2018 Fees
2017 Fees
1,190,600
—
—
2,700
1,193,300
$
$
1,201,674
—
—
1,800
1,203,474
$
$
(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. The 2017 audit fees include KPMG fees of $131,524.
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 2018 and 2017, all
services provided by PwC and KPMG were pre-approved by the Audit Committee in accordance with this policy.
27
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, 2018. 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 PCAOB Auditing Standard No. 16 Communications with Audit Committees.
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, 2018 filed with the SEC. The committee has not yet selected Travelzoo's independent
auditors for fiscal year 2019.
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
Mary Reilly (Chair)
Carrie Liqun Liu
Beatrice Tarka
28
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,
2018, which was filed previously with the SEC and contains important information about the Company and its financial
condition, including information contained in our 2018 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." A copy of the 2018 Annual Report accompanies 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, 590 Madison Avenue, 37th
Floor, New York, New York 10022 or by telephone at (212) 484-4900. This proxy statement and the 2018 Annual Report are
available on the Internet at http://ir.travelzoo.com/financials-filings/annual-reports-and-proxies. These documents are also
included in our SEC filings, which you can access electronically at the SEC's website at http://www.sec.gov.
29
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, 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 executive compensation, 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 2020 ANNUAL MEETING
It is contemplated that the next annual meeting of stockholders will be held on or about May 15, 2020. 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 2020 annual meeting must be received no later than November 29, 2019, to be included in the 2020 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 2020 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 no earlier than November 29, 2019 and not later than February 18, 2020. 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, 590 Madison Avenue, 37th
Floor, New York, NY 10022.
30
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, 590 Madison Avenue, 37th Floor, New York, New York 10022 or by telephone at (212) 484-4900.
RALPH BARTEL
Chairman of the Board
590 Madison Avenue, 37th Floor
New York, NY 10022
31
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
TRAVELZOO
Appendix A
I.
STATEMENT OF PURPOSE
The Audit Committee (the “Committee”) is appointed by the board of directors (the “Board”) of Travelzoo (the
“Company”) to discharge the Board’s responsibilities with respect to the Company’s accounting and financial reporting
processes, audits of the financial statements of the Company and the qualifications, independence and performance of the
Company’s independent auditors.
The duties of the Committee in connection with each of these responsibilities are ones of oversight. It is not the duty
of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate
and prepared in accordance with generally accepted accounting principles and applicable rules and regulations. The primary
responsibility for the Company’s financial statements and internal controls rests with the Company’s management and
independent auditors. Similarly, it is not the duty of the Committee to conduct investigations or to assure compliance with
laws and regulations or to monitor the Company’s legal compliance programs. The primary responsibility for these matters
also rests with the Company’s management, outside and internal legal counsel and independent auditors.
The Board recognizes that the Committee necessarily will rely on the advice and information it receives from the
Company’s management and independent auditors. Recognizing these inherent limits on the scope of the Committee’s review,
however, the Board expects the Committee to exercise independent judgment in assessing the quality of the Company’s
accounting and financial reporting processes and its internal controls. The Board also expects that the Committee will
maintain free and open communication with the other directors, the Company’s independent auditors and the Chief Financial
Officer (“CFO”) of the Company.
II.
COMPOSITION OF THE COMMITTEE
The Committee shall be comprised of at least three members of the Board, with the number of members to be
determined from time to time by the Board. Such members shall be designated by and serve at the discretion of the Board.
Each Committee member shall serve on the Committee during his or her respective term as a Board member, until his or her
successor is duly elected and qualified or his or her earlier resignation or removal. The Board may replace any member of the
Committee. Unless the Board has previously designated the Chair, the members of the Committee shall designate a Chair by
majority vote.
The composition of the Committee shall, in the judgment of the Board, be such as to comply with: (i) applicable
rules of the NASDAQ Stock Market, or the applicable rules governing audit committees of such other national market system
or exchange on which the Company’s stock may be traded from time to time, (ii) U.S. Securities and Exchange Commission
(“SEC”) independence requirements for audit committee members as set forth in Rule 10A-3 under the Securities Exchange
Act of 1934, as amended; (iii) Sections 301 and 407 of the Sarbanes-Oxley Act of 2002 and any rules or regulations
promulgated thereunder (the “Act”); and (iv) any successor laws, rules or regulations. Each member of the Committee shall
comply with all financial literary requirements of the NASDAQ Stock Market and at least one member will qualify as an
“audit committee financial expert” as defined by the SEC and determined by the Board.
III.
MEETINGS
The Committee shall meet at least four times annually, or more frequently as the Committee may from time to time
determine may be appropriate. The Committee shall schedule, and hold if necessary, private executive sessions with the
Company’s CFO, the Company’s Principal Accounting Officer (if separate from the CFO), the Company’s independent
auditors and any other executive officers the Committee may deem appropriate. The Chair of the Board, any member of the
Committee, or the Secretary of the Company may call meetings of the Committee. The Chair of the Committee, in
consultation with the Committee members, members of management and the Company’s independent advisors, will determine
the frequency and length of Committee meetings and develop the Committee’s agenda. Two or more Committee members
shall constitute a quorum. Meetings may be held via teleconference or videoconference, and the Committee may also act by
unanimous written consent in lieu of a meeting in accordance with the Company’s bylaws. The Committee will maintain
written minutes of its meetings, which minutes shall be filed with the minutes of the meetings of the Board.
34
IV.
DUTIES AND RESPONSIBILITIES
The duties and responsibilities of the Committee shall include, but not be limited to, the following:
A.
Independent Auditors
1.
Ensure the Company’s independent auditors submit to the Committee on an annual basis a
written statement consistent with Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, as the same may be modified or supplemented, and actively discuss with the independent auditors any issues
required to be discussed regarding their objectivity and independence. Ensure the Company’s independent auditors submit to
the Committee the disclosures required by Section 204 of the Act, as the same may be modified or supplemented, and actively
discuss with the independent auditors any issues disclosed therein. Approve, in advance, the retention of the independent
auditors for any non-audit service permissible under Sections 201 and 202 of the Act and the fee for such service. Consider
any significant non-audit assignments awarded to the independent auditors and determine whether or not these have any
impact on the independence of the independent auditors in the performance of the annual audit.
2.
Appoint, compensate, retain and oversee the work of the independent auditors (including
resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. Annually evaluate the qualifications, the quality control procedures and
prior performance of the Company’s current independent auditors, which shall be ultimately accountable to the Board and this
Committee, as representatives of the shareholders of the Company. Based on the representations regarding independence and
the results of such evaluation, determine whether the independent auditors be reappointed or replaced and whether it is
appropriate to adopt a policy of rotating on a regular basis; provided that the independent auditors must be replaced if the lead
audit partner, or the audit partner responsible for reviewing the audit, has performed audit services for the Company in each of
the five (5) previous fiscal years.
3.
Meet with the independent auditors and the CFO of the Company in advance of the annual
audit to review its proposed scope, the proposed scope of the quarterly reviews, and the procedures to be followed in
conducting the audit and the reviews.
compensation of the independent auditors.
4.
Review and approve the independent auditors’ annual engagement letter and the
of Auditing Standards No. 61, as the same may be modified or supplemented.
5.
Review with the independent auditors any matters required to be discussed by Statement
B.
Financial Reporting
1.
Review and discuss, prior to filing, the Company’s financial statements proposed to be
included in the Company’s Annual Report on Form 10-K with the Company’s CFO and independent auditors, including major
issues regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could
significantly affect the Company’s financial statements. If deemed appropriate after such review and discussion, recommend
to the Board that the financial statements be included in the Annual Report on Form 10-K.
2.
Review and discuss, prior to issuance or filing, the Company’s financial statements
proposed to be included in the Company’s public earnings reports and the Company’s Quarterly Reports on Form 10-Q with
the Company’s CFO and independent auditors, including the results of the independent auditors quarterly reviews. The Chair
of the Committee may represent the entire Committee for purposes of the Form 10-Q review.
3.
Discuss at least annually with the Company’s independent auditors the following: the
adequacy and effectiveness of the Company’s internal financial controls; the management letter issued by the independent
auditors and management’s response thereto; actions management has taken or progress it has made in addressing issues raised
by the independent auditors; any difficulties encountered in the course of the audit work, including any restrictions on the
scope of activities or access to required information; any disagreements with management; and major areas of financial risk.
Review with management and the independent auditors any comments or inquiries from
the SEC relating to the Company’s financial statements or other financial matters included in the Company’s filings with the
Commission.
4.
35
with applicable legal requirements, including disclosures of insider and affiliated party transactions.
5.
Obtain reports from management that the Company’s subsidiary(ies) are in conformity
6.
as suggested by the independent auditors or management.
Review major changes to the Company’s auditing and accounting principles and practices
C.
Management
1.
Discuss at least annually with the Company’s management and outside or internal counsel
the effectiveness of the Company’s legal compliance programs, any legal matters that may have a material impact on the
Company’s financial statements and any material reports or inquiries received from regulators or government agencies.
2.
Review and approve in advance, to the extent possible, any proposed related party
transactions and potential conflict of interest situations involving a director or director nominee of the Company, an executive
officer of the Company, any person or entity known by the Company to be a beneficial owner of more than 5% of the
Company’s common stock, or any person known by the Company to be an immediate family member of any of the foregoing;
provided, that the Committee shall have the authority to ratify certain related party transactions if approval of such
transactions in advance is not practicable or possible, in the sole discretion of the Committee.
3.
Authorize and oversee investigations deemed appropriate by the Committee into any
matters within the Committee’s scope of responsibility as described in this Charter or as may subsequently be delegated to the
Committee by the Board, with the power to retain independent counsel, accountants and other advisors and experts to assist
the Committee if deemed appropriate and to determine appropriate compensation for such advisors.
4.
to be included in the Company’s annual proxy statement.
Prepare the disclosure required of this Committee by S-K Item 306 of the SEC regulations
changes deemed appropriate; ensure that this Charter is filed with the SEC, as required.
5.
Review this Charter annually and make recommendations to the Board concerning any
D.
Other Matters
1.
Establish procedures for (i) the receipt, retention and treatment of complaints receive by
the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
action as the Committee deems appropriate.
2.
Report actions of the Committee periodically to the Board with such recommendations for
meetings and activities of the Committee.
3.
Maintain minutes or other records, either separately or within the minutes of the Board, of
applicable law.
4.
The Committee can delegate any of its responsibilities to the extent allowed under
5.
The Committee will perform such other functions as assigned by law, the Company’s
charter of bylaws, or the Board.
V.
AUTHORITY AND RESOURCES
The Committee may request any officer or employee of the Company or the Company’s outside and/or internal
counsel or independent auditors or advisors to attend a Committee meeting or to meet with any members of, or consultants to,
the Committee. The Committee shall have the power to conduct or authorize investigations into any matters within the
Committee’s scope of responsibilities. The Committee has the right at any time to obtain advice, reports or opinions from
internal and external counsel and expert advisors and has the authority to hire and terminate independent legal, financial and
other advisors as it may deem necessary, at the Company’s expense, without consulting with, or obtaining approval from, any
officer of the Company in advance.
36
The Company shall provide for appropriate funding, as determined by the Committee, in its capacity as a committee
of the Board, for payment of:
• Compensation to the independent auditors and any other public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit, review or attest services for the Company;
• Compensation of any advisors employed by the Committee; and
• Ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its
duties.
Approved effective March 22, 2019.
37
Appendix B
COMPENSATION COMMITTEE CHARTER
TRAVELZOO
I.
STATEMENT OF PURPOSE
The Compensation Committee (the “Committee”) is appointed by the board of directors (the “Board”) of Travelzoo
(the “Company”) to discharge the Board’s responsibilities with respect to the evaluation, approval and administration of the
Company’s compensation and incentive plans, policies and programs for executive officers and directors of the Company.
II.
COMPOSITION OF THE COMMITTEE
The Committee shall be comprised of at least two members of the Board, with the number of members to be
determined from time to time by the Board. Such members shall be designated by and serve at the discretion of the Board. Each
Committee member shall serve on the Committee during his or her respective term as a Board member, until his or her
successor is duly elected and qualified or his or her earlier resignation or removal. The Board may replace any member of the
Committee. The Chair of the Committee shall be designated by the Board.
Each member of the Committee shall be “independent” in accordance with applicable law, including the rules and
regulations of the U.S. Securities and Exchange Commission (“SEC”) and the rules of the NASDAQ Stock Market, or the
applicable rules governing compensation committees of such other national market system or exchange on which the
Company’s stock may be traded from time to time. Committee members are prohibited from interlocking or insider
participation with any member of the board of directors or compensation committee of another company. Committee members
shall, in the judgment of the Board, qualify as (i) “non-employee” directors within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, and (ii) “outside” directors within the meaning of Section 162(m) of the Internal
Revenue Code. For the avoidance of doubt, if the Company is a Smaller Reporting Company and for so long as permitted by
the rules of the NASDAQ Stock Market, members of the Committee are not required to satisfy any additional more stringent
requirements applicable to the members of compensation committees.
III.
MEETINGS
The Committee shall meet at least once per year, or more frequently as the Committee may from time to time
determine may be appropriate. The Chair of the Board, any member of the Committee, or the Secretary of the Company may
call meetings of the Committee. The Chair of the Committee, in consultation with the Committee members and members of
management, will determine the frequency and length of Committee meetings and develop the Committee’s agenda. Meetings
may be held via teleconference or videoconference, and the Committee may also act by unanimous written consent in lieu of a
meeting in accordance with the Company’s bylaws. The Committee shall maintain written minutes of its meetings, which shall
be filed with the meeting minutes of the Board. The Committee shall ensure that draft minutes of each meeting at which equity
award grants are considered or approved are promptly prepared following such meeting.
IV.
DUTIES AND RESPONSIBILTIES
The duties and responsibilities of the Committee shall include but not be limited to the following:
1. Review periodically, and as appropriate, approve compensation, incentive, and benefits policies and programs
applicable to the Company’s executive officers, including the Chief Executive Officer (the “CEO”). The CEO
may not be present during voting or deliberations on his or her compensation.
2. Conduct and review with the Board an annual evaluation of the performance of executive officers, including the
CEO.
3. Review and approve periodically the salaries, bonuses and perquisites of executive officers of the Company and
its subsidiaries, including the CEO.
4. Review annually and make recommendations to the Board regarding the compensation of the Board and Board
committee members.
38
5. Act as administering committee of the Company’s bonus plans, stock plans and equity arrangements that may be
adopted by the Company from time to time, with such authority and powers as are set forth in the respective
plans' instruments, including but not limited to establishing performance metrics and determining bonus payouts
and the granting of equity awards, in each case subject to the provisions of the Company’s applicable policies
adopted by the Board. The Committee shall consider the appropriateness of clawback provisions for every
executive grant.
6. Oversee the Company’s compliance with SEC rules and regulations regarding shareholder approval of certain
executive compensation matters, including advisory votes on executive compensation and the frequency of such
votes, and the requirement under the rules of the NASDAQ Stock Market that, with limited exceptions,
shareholders approve equity compensation plans.
7. Review for approval or disapproval special hiring or termination packages for executive officers of the Company,
if it is determined by the members of the Committee that approval by the full Board is not necessary.
8.
To the extent it deems necessary, review and advise the Board regarding other compensation plans.
9.
To the extent required by SEC rules and regulations, review and comment on management’s Compensation
Discussion & Analysis or similar disclosure and prepare an annual Compensation Committee Report for
inclusion in the Company’s proxy statement, including disclosure of the policy for the timing and rationale of the
Company’s stock option grants, if there is any such policy.
10. Review the Committee’s charter, structure, processes, and membership requirements and submit any
recommended changes to the Board at least once a year.
11. Report to the Board concerning the Committee’s activities with such recommendations as the Committee deems
appropriate at least once a year.
12. Perform such other functions as assigned by law, the Company’s charter or bylaws, or the Board.
The Committee may delegate any of its responsibilities to the extent allowed under applicable law, in each case subject
to the provisions of the Company’s applicable policies. However, the authority to grant equity awards or to take any other
action with respect to equity awards (other than the performance of clerical duties) may not be delegated to the Company’s
management or any other person.
V.
AUTHORITY AND RESOURCES
The Committee may request any officer or employee of the Company or the Company’s outside and/or internal
counsel to attend a Committee meeting or to meet with any members of, or consultants to, the Committee. The Committee
shall have the power to conduct a review of the compensation of any executives of the Company in its sole discretion at any
time. The Committee also has the right in its sole discretion at any time to retain or obtain advice, reports or opinions from
internal and external counsel, compensation consultants or other experts or advisors as it may deem necessary or appropriate,
at the Company’s expense, without consulting with, or obtaining approval from, any officer of the Company in advance. The
Committee shall be directly responsible for the appointment, compensation and oversight of any such consultants, experts or
advisors.
Approved effective March 22, 2019.
39
Appendix C
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TRAVELZOO
Pursuant to Section 242 of the
General Corporation Law of
the State of Delaware
____________________________
Travelzoo (the “Corporation”), a corporation duly organized and validly existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The Certificate of Incorporation of the Corporation, as amended heretofore, is hereby amended by deleting
Section A of Article FOURTH thereof in its entirety, and inserting the following in lieu thereof:
“A.
Classes and Number of Shares.
The total number of shares of stock which the Corporation shall have authority to issue is
25,000,000 shares, consisting of 20,000,000 shares of common stock, par value $0.01 per share (“Common Stock”),
and 5,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”).”
SECOND:
The foregoing amendment was duly adopted in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its authorized
officer this ____ day of __________, 2019.
TRAVELZOO
By: __________________________
Name:
Title:
40
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, 2018
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
(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:
Common Stock, $0.01 Par Value
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
1
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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, 2018, 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 $98,522,556.
The number of shares of the Registrant's common stock outstanding as of February 21, 2019 was 11,865,402 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2019 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.
2
TRAVELZOO
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
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
28
28
28
28
29
31
32
45
46
49
50
51
52
53
54
74
74
74
75
75
75
75
75
75
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 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 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. 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.
Item 1. Business
Overview
Travelzoo® provides our 28 million members insider deals and one-of-a-kind experiences personally reviewed by one of
our deal experts around the globe. With more than 25 offices worldwide, we have our finger on the pulse of outstanding travel,
entertainment, and lifestyle experiences. For over 15 years we have worked in partnership with more than 2,000 top travel
suppliers—our long-standing relationships give Travelzoo members access to the very best deals.
Travelzoo (the “Company”) attracts 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 7.5 million to 10.7 million unique visitors each month. We reach an audience of
millions of 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 4.1 million followers on Facebook and Twitter. Our
mobile applications have been downloaded 6.1 million times.
Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps,
the Travelzoo Top 20 e-mail newsletter, and the Newsflash e-mail alert service. We operate the Travelzoo Network, a network of
third-party websites that list deals published by Travelzoo. The Travelzoo website includes 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.
More than 2,000 companies use our services, including Air France, Air New Zealand, Alaska Airlines, British Airways,
Cathay Pacific Airways, Ctrip, Emirates, Etihad, Fairmont Hotels and Resorts, Hawaiian Airlines, Hilton Hotels & Resorts,
Hyatt Corporation, InterContinental Hotels Group, Lufthansa, Key Tours International, Princess Cruises, Royal Caribbean,
Singapore Airlines, Starwood Hotels & Resorts and United Airlines.
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.
During the first quarter of 2017, the Company discontinued the operations of its SuperSearch and Fly.com products to
focus on its global Travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations, net
of taxes, for the current and prior periods presented. See Note 11 to the accompanying consolidated financial statements
In April 2018, we entered into an agreement with WeekenGO, a start-up company in Germany. WeekenGO uses new
technology to promote vacation packages. We invested $3.0 million in WeekenGO for a 25% ownership interest.
3
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, 2018, Asia Pacific operations were 7% of revenues, European operations were 32% of revenues and
North American operations were 61% of our total revenues. Financial information with respect to our business segments and
certain financial information about geographic areas appears in Note 10 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, 2018, Azzurro is the
Company's largest stockholder, holding approximately 50.5% of the Company's outstanding shares.
As of December 31, 2018, there were 11,961,553 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 in which we participate in that provides an
opportunity to find high quality deals for our members and users. According to the World Trade & Tourism Council, global
Travel & Tourism produced $8.3 trillion in value (10.4% of GDP) for the total global economy in 2017, and is expected to rise
by 3.8% per year to $12.5 trillion (11.7% of GDP) in 2028. Based upon this outlook for the travel industry, 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 Zenith Media (Publicis Media), global advertising
spending is expected to grow 3% in 2019 and reach a total spending of $598 billion by the end of 2019. Digital advertising is
expected to grow 10% per year between 2017 and 2020. By 2020, digital advertising is forecast to account for 44% of global
advertising spending. In addition, according to the Kelsey Group's (BIA/Kelsey) new U.S. Local Media Forecast 2018, BIA/
Kelsey forecasts total local advertising spending to reach $162 billion in 2019. Digital advertising spending continues to
increase its share of total local advertising spending, growing from $32 billion in 2014 to $64 billion in 2019. 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.
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.
Growth of Mobile Advertising. Mobile advertising extends our products and services by providing mobile-specific
features to mobile device users. As advertisers continue to shift budgets to mobile advertising, we continue to focus
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.
4
Challenges 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 website,
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 the Travelzoo Network, a network of third-party websites that list deals published by Travelzoo. 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
Travelzoo website
Travelzoo Top 20
Newsflash
Local Deals and
Getaway
Travelzoo Network
Travelzoo mobile
applications
Website available in
the U.S., Australia,
Canada, China,
France, Germany,
Singapore, 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
Locally-targeted e-
mail alert service with
a single time-sensitive
and newsworthy offer
from local merchants
such as spas and
restaurants
A network of third-
party websites that list
outstanding deals
published by
Travelzoo
iPhone and Android
applications that
allow users to
discover the best
travel, entertainment
and local deals.
Publication
Schedule
24/7
Reach/Usage*
7.5 million to 10.7
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
Weekly
28.0 million members Mass “push”
advertising vehicle to
quickly stimulate
incremental travel and
entertainment
purchases
26.0 million members Regional targeting,
152 local markets
100% share of voice
for advertiser, flexible
publication schedule
Local targeting by zip
code,100% share of
voice for the local
businesses, flexible
publication schedule
Within two
hours of an
offer being
identified
Twice per
week in
active
markets
Weekly access to 20
outstanding,
handpicked deals
chosen from among
thousands
Breaking news offers
delivered just-in-time
Breaking news offers
delivered just-in-time
24/7
Over 400 third-party
websites
On-demand
6.1 million
downloads
Drives qualified users
with substantial
distribution beyond
the Travelzoo
audience
Contextually relevant
travel deals that have
been handpicked and
professionally
reviewed
Allows travel,
entertainment and
local deals advertisers
to reach our audience
that is on the go.
24/7 access to travel,
entertainment and
local deals for
consumers that are on
the go.
* For the Travelzoo website, reach information is based on data from Google Analytics. For Top 20, Newsflash, Local Deals
and Getaway, Travelzoo Network and Travelzoo mobile applications, reach/usage information is based on internal Travelzoo
statistics as of December 31, 2018.
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 7.5 million to
10.7 million unique visitors each month. We reach an audience of millions of 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 4.1 million followers on Facebook and Twitter. Our mobile applications have been downloaded 6.1 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.
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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
The Travelzoo website, Travelzoo Top 20 e-mail newsletter, Newsflash, Local Deals, Getaway, and the Travelzoo
Network, provide consumers information on current offers at no cost to the consumer. Key features of our products include:
• Aggregation of Offers from Many Companies. The Travelzoo website 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.
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Reliable Information. We operate a Test Booking Center to check the availability of travel, entertainment and local
deals before publishing.
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.
•
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.
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Advertisers
As of December 31, 2018, 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:
Air France
Air New Zealand
Alaska Airlines
British Airways
Cathay Pacific Airways
Ctrip
Emirates
Etihad
Fairmont Hotels and Resorts
Hawaiian Airlines
Hilton Hotels & Resorts
Hyatt Corporation
InterContinental Hotels Group
Lion World Travel
Lufthansa
Nexus Holidays
Princess Cruises
Royal Caribbean
Singapore Airlines
Starwood Hotels & Resorts Worldwide
Tourism Australia and Tourism Ireland
United Airlines
As discussed in Note 10 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, 2018, 2017 and 2016. The agreements
with certain advertisers are in the form of multiple insertion orders and merchant agreements from groups of entities under
common control.
In 2018, 7% of our total revenues were generated from our Asia Pacific operations, 32% of our total revenues were
generated from our European operations and 61% of our total revenues were generated from our North American operations.
See Note 10 to the accompanying consolidated financial statements.
Sales and Marketing
As of December 31, 2018, our advertising sales force and sales support staff consisted of 150 employees worldwide.
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.
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 and Gilt City 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
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
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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. The European Union has adopted a new data protection legal framework, effective in May 2018, which
may result in a greater compliance burden for companies, including us, with users in Europe and increased costs of compliance.
Additionally, the California Consumer Privacy Act was recently passed and creates new data privacy rights for users effective
in 2020. 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.
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. 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
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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, 2018, we had 422 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. The business, financial condition and operating results of
the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those
described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and
operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any or all
of the risks listed below, as well as other variables affecting our operating results, in whole or in part, could materially and
adversely affect our business or financial condition, which could cause the market price of our stock to decline or cause
substantial volatility in our stock price, in which event the value of your common stock could decline. You should also keep
these risk factors in mind when you read forward-looking statements.
Risks Related to Our Financial Condition and Business Model
We cannot assure you that we will be profitable.
In the years ended December 31, 2018, 2017 and 2016, we generated net income of $4.7 million, $3.5 million and $6.6
million, respectively. Although we were profitable in 2018, 2017 and 2016, there is no assurance that we will 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 expand
and upgrade our technology and 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 decline, 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:
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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;
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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 encourage our existing members to engage with our website and email products and to convert
them to revenue-generating users;
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, as well as our hotel booking
platform or travel package products, 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.
Our expansion of our product offering to include the addition of a hotel booking platform and our investment in packaging
technology may result in additional costs that exceed revenue and may trigger additional stock volatility.
We have been in the process of expanding our hotel booking platform and investing in packaging technology which may
result in an increase in costs to further develop our product offerings 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 or our expanded travel product
offerings, such as package offers, are not embraced by our users or our advertising partners, or if we are unsuccessful in our
efforts to monetize these initiatives, our business and financial results could be adversely affected. To the extent that our room
rates on our hotel booking platform or our package offers are not competitive (i.e., versus the websites of other online travel
companies or hotel company websites), we may not be able to attract members. If we cannot attract members to the hotel
booking platform or to our other travel product offerings to make bookings, our 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. Furthermore, hotels may offer products
and services on more favorable terms to consumers who transact directly with them. In the past year, certain hotel chains have
launched advertising campaigns expressly designed to drive consumer traffic directly to their websites. We can give no
assurances that the hotel booking platform or investment in packaging technology and expansion of package offers will yield
the benefits we expect and will not result in additional costs or have adverse impacts on our business.
Our Local Deals business may be adversely impacted by competition and decreased consumer demand for vouchers.
Our Local Deals and Getaway products include the sale of vouchers directly to consumers to advertise promotional offers
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 the hiring of additional sales force and additional spend on customer service, marketing,
technology tracking systems and payment processing. 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.
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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. The number of users we attract from search engines to our websites is due in large
part to how and where information from, and links to, our websites are displayed on search engine results pages. The display,
including rankings, of unpaid search results can be affected by a number of factors, many of which are not in our control and
may change frequently. 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.
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 a
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 also rely on application marketplaces, or app
stores, to drive downloads of our applications. In the future, marketplace operators may make changes to their marketplaces
that make access to our products more difficult.
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 a personal computer
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 U.S. 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. On December 22, 2017, the U.S.
government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate
income tax system including: a federal corporate rate reduction from 35% to 21%; limitations on the deductibility of interest
expense and executive compensation; creation of new minimum taxes such as the base erosion anti-abuse tax (“BEAT”) and
Global Intangible Low Taxed Income (“GILTI”) tax; and the transition of U.S. international taxation from a worldwide tax
system to a modified territorial tax system, which will result in a one time U.S. tax liability on those earnings which have not
previously been repatriated to the U.S. (the “Transition Tax”).
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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 U.S. and various foreign jurisdictions.
From time to time, the Company is 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 its taxes or its net operating income or may result in recognition of previously unrecognized tax
benefits upon completion of the examination.
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 U.S. have initiated lawsuits against other online 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.
Given our hotel booking platform consists 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 or hotel 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 and still
relies significantly on e-mail communications with our members. 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. We can also experience a decline in advertisers making
offers in certain destinations due to natural disasters, such as hurricanes, earthquakes, fires, floods and volcanic activity. 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 Getaway 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.
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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, Getaway 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,
Getaway and 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, which may result in lower revenue depending on
volume of hotel bookings.
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 refunds to members 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, since we
are selling vouchers on behalf of the merchants directly to our members, we face exposures should merchants not fully honor
the deals. As for our travel business, we are 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.
From time to time, advertisers risk the closure of their business if they fail to pay their suppliers and can face regulatory issues
(including losing their travel licenses), which can result in the cancellation of travel services booked by consumers through the
advertiser. Advertisers who fail to fulfill the travel services advertised in the promotions ran by Travelzoo can negatively
impact the reputation of Travelzoo, and advertisers that fail to pay Travelzoo for the advertisements can also negatively impact
revenue growth. Moreover, any shortcomings of one or more of our advertisers or 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 and 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 could damage our reputation,
reduce our ability to attract new members or retain our current members, and diminish the value of our brand.
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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 and Europe), may affect our ability to deliver 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.
Changes to our technology and user interfaces for our website and mobile applications used to present our deals could
adversely affect our revenue and business.
Our business depends on website and mobile technology interfaces in order to present deals to our members and generate
revenue from our advertisers. Changes to our website and mobile technology and user interface intended to enhance the user
experience may have an adverse impact on our member activity and may reduce revenue from advertisers. In October 2016, we
launched our fully responsive website that adjusts to different screen sizes and allows our members to more readily search our
deals, which we believe will improve the user experience on our site; however, this may lead to unforeseen issues that could
adversely affect our revenue and business. In addition, as the Company previously disclosed, the Company discontinued its
SuperSearch product in order to simplify the overall search experience, and this could result in further loss of revenues. The
discontinuance of SuperSearch supports the Company's strategy to focus on its global Travelzoo brand.
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 of
members 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, 2018, our cash and cash equivalents decreased by $4.5 million to $18.0 million, of
which $12.9 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 4 and 5 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.
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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 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. In addition, such incidents may also result in a decline in our active user base or engagement levels.
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. In addition, our results can be negatively
impacted by purchases made using fraudulent credit cards. Because we act as the merchant of record for certain hotel booking
and voucher transactions, we may be held liable for accepting fraudulent credit cards on our websites as well as other payment
disputes with our customers. If we have an increase of charge-backs due to the use of fraudulent credit cards on our websites,
our business, results of operations and financial condition could be adversely affected. Moreover, under payment card rules and
our contracts with our card processors, if there is a security breach of payment card information that we store, 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 changed the way we account for certain of our sales transactions. We adopted this standard in the
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first quarter of 2018. The adoptions resulted in with a cumulative adjustment to retained earnings and changes in revenue
recognition policies. We may need to change our accounting systems and processes if we are required to adopt future or
proposed changes in accounting principles. 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 Asia increased 5% in 2018 compared to 2017, and our operations in Asia generated an operating loss
before tax of $6.3 million and $6.0 million in 2018 and 2017, respectively. Our revenues in Europe increased 7% in 2018
compared to 2017, and our operations in Europe generated an operating income before tax of $5.0 million and $2.3 million in
2018 and 2017, respectively.
In our effort to expand our business internationally we may continue to invest in marketing as well as additional
employees to support the business expansion, which may generate operating losses. Furthermore, operating losses in certain
jurisdictions may not have any recognizable tax benefit, which is the case for the Asia Pacific business. These factors could
have a material negative impact on our consolidated net income and cash flows, which 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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uncertainties and instability in economic and market conditions, such as those caused by the United
Kingdom's withdrawal from the European Union, the slowing of growth in markets such as China and Brazil,
and unrest in the Middle East;
uncertainty regarding how the United Kingdom's access to the European Union Single Market and the wider
trading, legal, regulatory and labor environments, especially in the United Kingdom and European Union,
will be impacted by the United Kingdom's withdrawal from the European Union, including the resulting
impact on our business and that of our clients;
trade barriers and changes in trade regulations, including new or increased tariffs;
difficulties in developing, staffing and simultaneously managing foreign operations as a result of distance,
language and cultural differences;
stringent local labor laws and regulations;
bans on travel from certain countries to the United States;
risks related to government regulation, including changing policies in areas such as trade, travel, immigration,
and healthcare, among others; and
potentially adverse tax consequences.
Moreover, fluctuations in currency exchange rates can impact our revenues. Foreign currency movements relative to the
U.S. dollar have negatively impacted our revenues from our operations in Europe. For example, since the United Kingdom's
Brexit vote, global markets and foreign exchange rates have experienced increased volatility, including a decline in the value of
the British Pound Sterling as compared to the U.S. Dollar. The United Kingdom's withdrawal from the European Union could
result in other member countries also determining to leave, which could lead to added economic and political uncertainty and
further devaluation or eventual abandonment of the Euro common currency, any of which could have a negative impact on
travel and therefore our business and results of operations. The uncertainty and volatility 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.
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In addition, we face risks related to the growth rate and expansion of our international business, including our 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 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 $6.8 million, $6.8 million and $8.0 million on online marketing initiatives relating to member acquisition for
the years ended December 31, 2018, 2017 and 2016, respectively, and expect to continue to spend significant amounts to
acquire additional members. Our long-term success depends on our continued ability to increase the overall number of
members and engage those members throughout the travel planning, booking and trip-taking phases. We must continue to retain
and acquire members and ensure that our members are engaged and converted into revenue-generating users 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 Middle East conflicts, terrorist attacks, mass shooting incidents and natural disasters, such as hurricanes,
earthquakes, fires, floods and volcanic activity, have a negative impact on the travel industry and affect travelers' behavior. In
addition, advertisers may choose to limit advertising spend on certain destinations given the recent terror attacks and natural
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disasters, which can adversely impact our business. We are not in a position to evaluate the net effect of these circumstances on
our business; however, we believe there has been negative impact to our business by such events. Furthermore, 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.
In addition, the United Kingdom’s withdrawal the European Union could continue to lead to economic uncertainty and
have a negative impact on the travel industry and our European business. The United Kingdom could lose access to the single
European Union market, travel between the United Kingdom and European Union countries could be restricted, and we could
face new regulatory costs and challenges, the scope of which are presently unknown.
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 also launched a new and simpler design for our website and are
investing in packaging technology in both Europe and the United States to expand our products to include package offers. We
cannot guarantee that the expanded product offerings will be embraced by our members. It may take us longer than expected to
fully realize the anticipated benefits of the expanded product offerings, and those benefits may ultimately be smaller than
anticipated, which could adversely affect our business. While we are striving to improve functionality, usability and design in
our products, the recent enhancements on web and mobile and investment in packaging technology may not achieve the desired
results we anticipate, and if unsuccessful, could result in a decline in revenues, an increase in costs, and a negative impact on
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.
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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.
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 Trip Advisor, 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. Additionally, certain search engines have increased their focus on acquiring or launching flight and
hotel search products. For example, Google has entered various aspects of the online travel market, including by establishing a
flight metasearch product (“Google Flights”) and a hotel metasearch product (“Hotel Ads”) that are growing, as well as its
“Book on Google” reservation functionality. We compete with travel metasearch engines like Kayak.com and online travel and
entertainment deal publishers. We compete with large online travel agencies like Expedia and Booking Holdings 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.
There has been substantial consolidation of the global travel industry and we believe this trend will continue. Some of our
competitors are large companies that have significant resources and substantial international operations. These large companies
have recently announced acquisitions to further consolidate the online travel industry. For example, Ctrip acquired Skyscanner
and Priceline (now Booking Holdings) acquired Momondo. Expedia owns Travelocity, Orbitz, Hotels.com, Hotwire, Trivago,
and HomeAway, among others. Booking Holdings owns Booking.com, Priceline.com, Agoda.com, Kayak.com, Cheapflights,
Rentalcars.com, Momondo, and OpenTable, among others. The continued consolidation of the global travel market may impact
our ability to compete in certain areas.
There has also been a proliferation of new channels through which accommodation providers can offer reservations. For
example, companies such as Airbnb and HomeAway (which is owned by Expedia) offer services providing alternative
accommodation property owners, particularly individuals, an online place to list their accommodations where travelers can
search and book such properties and compete with our hotel booking platform and hotel offers. Further, meta-search services
may lower the cost for new companies to enter the market by providing a distribution channel without the cost of promoting the
new entrant's brand to drive consumers directly to its website. Some of our competitors and potential competitors offer a
variety of online services, such as food delivery, shopping, gaming or search services, many of which are used by consumers
more frequently than online travel services. As a result, a competitor or potential competitor that has established other, more
frequent online interactions with consumers may be able to more easily or cost-effectively acquire customers for its online
travel services than we can. If any of these services are successful in attracting consumers who would otherwise use our
services, our customer acquisition costs, including our brand and performance marketing expenses, could increase and our
business and results of operations would be harmed.
We also compete with companies like Groupon that sell vouchers for deals from local businesses such as spas, hotels and
restaurants, as well as sell deals from tour operators for vacation packages. We expect to face increased competition from other
Internet and technology-based businesses such as Google. 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.
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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.
We may not be able to access third-party technology upon which we depend.
We use data technology and software products from third parties, and technology from our vendors may not continue to
be available to us on commercially reasonable terms, or at all. Our business will suffer if we are unable to access 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.
We also rely on certain third-party computer systems and third party service providers, including Global Distribution
Systems and computerized central reservation systems, in connection with providing certain of our hotel booking services. Any
interruption in these third-party services and systems or deterioration in their performance could prevent us from utilizing
certain booking services and have an adverse effect on our business, brands and results of operations. Our agreements with
some third-party service providers are terminable upon short notice and often do not provide recourse for service interruptions.
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:
• Diversion of management time and focus from operating our business to acquisition integration challenges.
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Implementation or remediation of controls, procedures, and policies at the acquired company.
Integration of the acquired company's accounting, human resource, and other administrative systems, and coordination
of product, engineering, and sales and marketing functions.
• Transition of operations, users, and customers onto our existing platforms.
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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.
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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.
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• 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 disposed assets.
Impairment of investments, goodwill and other assets acquired or divested.
In the case of equity investments, the need to obtain financial and other information regarding the investee in order to
properly account and report for the investment on an on-going basis.
• 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.
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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 February 21, 2019, the closing price of our common stock on the NASDAQ Global Select Market ranged from
$6.18 to $20.60. 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; news reports relating to trends in our markets or general economic conditions; the level
of demand for our stock, including the amount of short interest in our stock; stockholder collateral arrangements, and cash
requirement on funds or stockholders that result in stockholder trades. There are several products offered in the market that
allow stockholders to hedge stock, pledge their stock for collateral or engage in short selling, which can negatively impact the
price of our stock. The Company does not prohibit stockholder hedging or pledging arrangements but does have strict policies
against trading with material non-public information. 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. As of December 31, 2018, Azzurro is the Company's largest
stockholder, holding approximately 50.5% of the Company's outstanding shares.
22
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:
•
•
•
•
•
•
•
•
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.
23
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 Getaway 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. 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 Getaway.
If we are required to materially increase the estimated liability recorded in our financial statements with respect to
unredeemed Local Deals and Getaway 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 record keeping 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.
24
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. In June 2018, the U.S. Supreme
Court decided the South Dakota v. Wayfair, Inc. sales tax nexus case. As a result of the Supreme Court ruling, states now have
the ability to adopt laws requiring taxpayers to collect and remit sales tax on a basis of economic nexus, even in states in which
the taxpayer has no presence. We are currently in the process of evaluating the future impact of the ruling on our financial
position, results of operations and cash flows. 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 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.
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 and 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. Outside
parties may also attempt to takeover customer accounts by using passwords, usernames and other personal information
obtained elsewhere to attempt to login to customer accounts on our websites. 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, Home Depot, Zappos, LinkedIn
and Sony, have experienced high-profile security breaches that exposed their customers' personal information and it is expected
that these types of events will continue to occur. A security breach at any travel service provider, hotel, payment processor,
GDS or other third-party travel supplier, such as the security breach experienced by Sabre, could result in negative publicity
and exposure, as well as damage to the reputations of the hotels impacted by the incident.
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.
These issues are likely to become more difficult to manage as we expand the number of places where we operate and as the
tools and techniques used in such attacks become more advanced. 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
25
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, the European Union has adopted the General Data Protection
Regulation (“GDPR”), which went into effect in May 2018 and is designed to harmonize and enhance data privacy laws across
Europe. The GDPR imposes requirements that are inconsistent with other laws currently in effect, yet regulators may claim that
both apply. In the United Kingdom, a Data Protection Bill went into effect in May 2018, which substantially implements the
GDPR in the United Kingdom. Additionally, the California Consumer Privacy Act was also recently passed and creates new
data privacy rights for users effective in 2020. There are a number of proposals for data privacy laws pending or proposed in
other jurisdictions, including at both the state and federal level of the United States. Complying with these varying national
and international requirements could cause us to incur substantial costs or require us to change our business practices in a
manner adverse to our business. In addition, compliance with these laws may restrict our ability to provide services to our
customers that they may find to be valuable. 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 additional 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.
We post on our websites our privacy policies and practices concerning the collection, use and disclosure of user data. We
may need to increase our security-related expenditures to maintain or increase our systems' security. 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 or consumer protection-related laws and regulations could result in proceedings or actions against us by
governmental entities or others (e.g., class action privacy litigation), and subject us to significant penalties and negative
publicity, require us to change our business practices, increase our costs and adversely affect our business. If Internet and
mobile users were to reduce their use of our websites, mobile platforms, products, and services as a result of these privacy
concerns, our business could be harmed. As noted above, we are also subject to the possibility of security breaches, which
themselves may result in a violation of these laws.
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. 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 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.
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 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 and $2,000 for
26
the years ended December 31, 2017 and 2016, respectively. The Company did not make any payment under this voluntary
program in 2018.
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 Getaway 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 Getaway programs, would only be subject
to registration if the vouchers 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 registered public accounting firm
may not be able to attest 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 registered public accounting firm 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 may identify areas of internal control that may need improvement and may
require remediation efforts where necessary. Currently, none of our identified areas that need improvement has been
categorized as material weaknesses. We may identify conditions that may result in material weaknesses in the future.
We may be unable to protect our registered trademark or other proprietary intellectual property rights.
Our success depends to a significant degree upon the protection of the Travelzoo brand name. We rely upon a
combination of copyright, trade secret and trademark laws, 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, the U.K. and other jurisdictions. If we are unable to protect our rights in the mark in North
America, Europe, and Asia Pacific, 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
27
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, and Japan, including
offices in Beijing, Guangzhou, Hong Kong, Shanghai, Singapore, Sydney, 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; Las Vegas, Nevada; Los
Angeles, California; Miami, Florida; Mountain View, 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 4 - 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.
28
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.
2018:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2017:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
12.16 $
20.60 $
18.30 $
7.35 $
9.00 $
11.20 $
10.95 $
10.35 $
7.43
10.95
6.70
6.00
5.95
7.75
8.90
8.35
$
$
$
$
$
$
$
$
On February 21, 2019, the last reported sales price of our common stock on the NASDAQ Global Select Market was
$14.26 per share.
As of February 21, 2019, there were approximately 197 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 2018.
Repurchases of Equity Securities
We repurchased 283,000 shares of our equity securities during the three months ended December 31, 2018.
Period
October 1, 2018 - October 31, 2018
November 1, 2018 - November 30, 2018
December 1, 2018 - December 31, 2018
Total Number of
Shares
Purchased
Average Price
Paid
per Share
133,344
149,268
$
$
— $
282,612
7.78
9.26
—
Total Number of
Shares
Purchased
as Part of
Publicly
Announced
Programs
133,344
149,268
—
282,612
Maximum Shares
that May Yet
be Purchased Under
the Programs (1)
149,268
—
—
(1) In March 2018, 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, 2018, the Company repurchased
500,000 shares of common stock for $5.3 million. During the three months ended December 31, 2018, the Company
repurchased 283,000 shares of common stock. In February 2019, the Company entered into a Stock Repurchase
Agreement with Azzurro Capital Inc. (“Azzurro”), a majority shareholder of the Company and repurchased an aggregate
of 100,000 shares of the Company’s common stock for an aggregate purchase price of $1.5 million.
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, 2014, December 31, 2015, December 31, 2016, December 31, 2017, and December 31, 2018. The graph assumes
that $100 was invested on December 31, 2013 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
NASDAQ Market Index
Russell 2000 Index
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
$
$
$
100 $
100 $
100 $
59 $
113 $
104 $
39 $
120 $
98 $
44 $
129 $
117 $
30 $
166 $
132 $
46
159
116
30
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth below for the years ended December 31, 2018, 2017 and 2016 are
derived from our audited consolidated financial statements. The selected consolidated financial data set forth below for the
years ended December 31, 2015 and 2014 represent unaudited consolidated financial statements presented on a basis consistent
with those for years ended December 31, 2015 and 2014. The financial results for Travelzoo 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 12 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
Income from continuing operations, net of taxes
Income from discontinued operations, net of
taxes
Net income
Income per share—basic:
Continuing operations
Discontinued operations
Net income per share
Income per share—diluted:
Continuing operations
Discontinued operations
Net income (loss) per share
Shares used in per share calculation from
continuing operations—basic
Shares used in per share calculation from
discontinued operations—basic
Shares used in per share calculation from
continuing operations—diluted
Shares used in per share calculation from
discontinuing operations—diluted
Year Ended December 31,
2018
2017
2016
2015
2014
(In thousands, except per share data)
$
111,322
$
106,524
$
114,263
$
123,961
$
134,243
8,238
4,661
—
4,661
0.38
—
0.38
0.37
—
0.37
$
$
$
$
$
4,545
1,592
1,938
3,530
0.12
0.15
0.27
0.12
0.15
0.27
$
$
$
$
$
10,186
6,007
624
6,631
0.43
0.04
0.47
0.43
0.04
0.47
$
$
$
$
$
3,820
8,523
2,341
10,864
0.58
0.16
0.74
0.58
0.16
0.74
$
$
$
$
$
13,798
10,323
2,739
13,062
0.70
0.18
0.88
0.70
0.18
0.88
$
$
$
$
$
12,323
12,882
13,997
14,722
14,768
12,323
12,882
13,997
14,722
14,768
12,510
12,894
13,997
14,722
14,809
12,510
12,894
13,997
14,722
14,809
Cash and cash equivalents
Working capital
Total assets
Stockholders' equity
Consolidated Balance Sheet Data:
2018
2017
2016
2015
2014
Year Ended December 31,
(In thousands)
$
$
$
$
18,017
6,356
43,424
14,059
$
$
$
$
22,553
7,646
45,672
13,078
$
$
$
$
26,838
14,643
53,530
18,064
$
$
$
$
35,128
16,046
68,579
21,387
$
$
$
$
55,417
36,259
93,307
35,827
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.
Overview
Travelzoo® provides our 28 million members insider deals and one-of-a-kind experiences personally reviewed by one of
our deal experts around the globe. With more than 25 offices worldwide, we have our finger on the pulse of outstanding travel,
entertainment, and lifestyle experiences. For over 15 years we have worked in partnership with more than 2,000 top travel
suppliers—our long-standing relationships give Travelzoo members access to the very best deals.
Our publications and products include the Travelzoo website (travelzoo.com), the Travelzoo iPhone and Android apps,
the Travelzoo Top 20 e-mail newsletter, and the Newsflash e-mail alert service. We operate the Travelzoo Network, a network of
third-party websites that list deals published by Travelzoo. The Travelzoo website includes 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.
More than 2,000 companies use our services, including Air France, Air New Zealand, Alaska Airlines, British Airways,
Cathay Pacific Airways, Ctrip, Emirates, Etihad, Fairmont Hotels and Resorts, Hawaiian Airlines, Hilton Hotels & Resorts,
Hyatt Corporation, InterContinental Hotels Group, Lion World Travel, Lufthansa, Nexus Holidays, Princess Cruises, Royal
Caribbean, Singapore Airlines, Starwood Hotels & Resorts, Tourism Australia, Tourism Ireland, and United Airlines.
During the first quarter of 2017, the Company discontinued the operations of its SuperSearch and Fly.com products to
focus on its global Travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations, net
of taxes, for the current and prior periods presented. See "Note 11: Discontinued Operations" to the accompanying consolidated
financial statement for further information.
In April 2018, we entered into an agreement with WeekenGO, a start-up company in Germany. WeekenGO uses new
technology to promote vacation packages. We invested $3.0 million in WeekenGO for a 25% ownership interest. See "Note 1:
Summary of Significant Accounting Policies" to the accompanying consolidated financial statements for further information.
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, 2018, Asia Pacific operations were 7% of revenues, European operations were 32% of revenues and
North American operations were 61% of our total revenues. Financial information with respect to our business segments and
certain financial information about geographic areas appears in Note 10 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.
32
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 two separate groups of our advertising products: Travel and Local.
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, the Travelzoo 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 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 based upon estimates at the time of sale.
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. 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.
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.
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 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 accessing our services through mobile
33
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 number 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
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 refunds to members on vouchers sold. Our cost of revenues is also expected to increase due to our
effort to develop our hotel booking platform. 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
a 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, in August of 2015 we 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 presentation of our offerings to our audience. We expect our efforts on developing our product and
services will continue to be a 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.
34
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. 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, and 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 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.
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
Total operating expenses
Income from continuing operations
Other income (loss), net
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Year Ended December 31,
2018
2017
2016
100.0%
100.0%
100.0%
11.0
89.0
52.6
8.1
20.9
81.6
7.4
—
7.4
3.2
4.2
—
12.1
87.9
53.8
8.6
21.2
83.6
4.3
0.1
4.4
2.9
1.5
1.8
12.1
87.9
51.1
8.0
19.9
79.0
8.9
(0.1)
8.8
3.5
5.3
0.5
4.2%
3.3%
5.8%
35
Operating Metrics
The following table sets forth operating metrics in Asia Pacific, Europe and North America:
Asia Pacific
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
Europe
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
North America
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
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,
2018
2017
2016
3,629,000
0.38
2.17
92
774,000
598,000
$
$
$
3,621,600
3.08
2.09
86
728,300
559,000
$
$
$
3,598,000
3.28
2.78
108
662,000
531,000
8,762,000
8,523,300
8,153,000
2.59
4.24
244
1,853,000
885,000
$
$
$
2.89
4.13
222
1,738,481
791,000
$
$
$
2.85
4.69
249
1,595,000
637,000
17,469,000
2.10
3.87
356
3,430,000
3,138,000
17,375,600
1.87
$
3.79
$
322
$
3,015,700
2,866,000
$
$
$
17,223,000
2.15
3.94
332
3,049,000
2,507,000
29,732,000
29,388,200
28,838,000
2.16
3.79
264
$
$
$
2.34
3.69
241
$
$
$
2.51
4.02
258
6,057,000
5,482,481
4,621,000
4,216,000
5,306,000
3,675,000
$
$
$
$
$
$
$
$
$
$
$
$
(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 (in thousands).
36
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 platform. Local
revenue includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).
Asia Pacific
Travel
Local
Total Asia Pacific revenues
Europe
Travel
Local
Total Europe revenues
North America
Travel
Local
Total North America revenues
Consolidated
Travel
Local
Total revenues
Asia Pacific
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
$
$
$
7,351
508
7,859
30,856
5,293
36,149
56,145
11,169
67,314
94,352
16,970
111,322
$
$
$
$
$
$
$
$
6,992
527
7,519
29,180
4,501
33,681
53,880
11,444
65,324
90,052
16,472
106,524
$
$
$
$
$
$
$
$
8,845
853
9,698
31,087
5,820
36,907
54,248
13,410
67,658
94,180
20,083
114,263
Asia Pacific revenues increased $340,000 or 5% in 2018 compared to 2017. This increase was primarily due to the
increase in Travel revenues, the decrease in Local revenues and a $24,000 negative impact from foreign currency movements
relative to the U.S. dollar. The increase in Travel revenues of $371,000 was primarily due to a $750,000 increase of
advertisements placements on our website, offset partially by a $316,000 decrease of number of e-mails sent. The decrease in
Local revenues of $7,000 was primarily due to the decreased number of Local Deals vouchers sold.
Asia Pacific revenues decreased $2.2 million or 22% in 2017 compared to 2016. This decrease was primarily due to the
decrease in Travel revenues, the decrease in Local revenues and a $341,000 negative impact from foreign currency movements
relative to the U.S. dollar. The decrease in Travel revenues of $1.5 million was primarily due to the decreased number of e-
mails sent. The decrease in Local revenues of $301,000 was primarily due to the decreased number of Local Deals vouchers
sold.
Europe
Europe revenues increased $2.5 million or 7% in 2018 compared to 2017. This increase was primarily due to the increase
in Travel revenues, the increase in Local revenues and a $1.5 million positive impact from foreign currency movements relative
to the U.S. dollar. The increase in Travel revenue of $345,000 was primarily due to the increased placements of advertisements
on our website. The increase in Local revenues of $657,000 was primarily due to the increased number of Local Deals
vouchers sold.
Europe revenues decreased $3.2 million or 9% in 2017 compared to 2016. This decrease was primarily due to the
decrease in Travel revenues, the decrease in Local revenues and a $766,000 negative impact from foreign currency movements
relative to the U.S. dollar. The decrease in Travel revenue of $1.3 million was primarily due to the decrease in the average take
rate earned from travel publications and the decrease in vouchers sold in getaway voucher revenues. The decrease in Local
revenues of $1.2 million was primarily due to the decreased number of Local Deals vouchers sold.
37
North America
North America revenues increased $2.0 million or 3% in 2018 compared to 2017. This increase was primarily due to the
increase in Travel revenues offset slightly by the decrease in Local revenue. The increase in Travel revenue of $2.3 million was
primarily due to the increased number of emails sent. The decrease in Local revenues of $275,000 was primarily due to the
decreased number of Local Deals vouchers sold.
North America revenues decreased $2.3 million or 3% in 2017 compared to 2016. This decrease was primarily due to the
decrease in Local and Travel revenues. The decrease in Local revenues of $2.0 million was primarily due to the decreased
number of Local Deals vouchers sold. The decrease in Travel revenue of $371,000 was primarily due to the decreased number
of Getaway vouchers sold, offset partially by the increased travel publications revenues.
For 2018, 2017 and 2016, 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, amortization of
capitalized website development costs, credit card fees, certain estimated refunds to members 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 $12.3 million, $12.9 million and $13.9 million for the years ended December 31, 2018,
2017 and 2016, respectively.
Cost of revenue decreased $641,000 in 2018 compared to 2017. This decrease was primarily due to a $603,000 decrease
in payments made to third-party partners of the Travelzoo Network.
Cost of revenue decreased $946,000 in 2017 compared to 2016. This decrease was primarily due to a $837,000 decrease
in payments made to third-party partners of the Travelzoo Network.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional expenses, salary and related 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 $58.5 million, $57.3 million and $58.4 million for 2018, 2017 and 2016,
respectively. Advertising expenses accounted for 14%, 15% and 18%, 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 increased $1.2 million in 2018 compared to 2017. The increase was primarily due to a $1.2
million increase in trade, commerce and brand marketing expenses and a $688,000 increase in salary, employee and contractor
related expenses offset partially by a $659,000 decrease in member acquisition costs.
Sales and marketing expenses decreased $1.1 million in 2017 compared to 2016. The decrease was primarily due to a
$1.2 million decrease in member acquisition costs and a $415,000 decrease in salary and employee related expenses, offset
partially by a $301,000 increase in facility costs and $285,000 increase in marketing costs.
Product Development
Product development expenses consist primarily of salary and related expenses for software development staff, fees for
professional services, software maintenance and amortization and facilities costs. Product development expenses were $9.0
million, $9.2 million and $9.1 million for 2018, 2017 and 2016, respectively.
Product development expenses decreased $231,000 in 2018 compared to 2017. The decrease was primarily due to
$204,000 decrease in salary and employee related expenses.
Product development expenses decreased $128,000 in 2017 compared to 2016. The increase was primarily due to an
increase in professional services related in part to our continuous enhancement to our website.
38
General and Administrative
General and administrative expenses consist primarily of salary and related expenses for administrative and executive
staff, fees for professional services, rent, bad debt expense, amortization of intangible assets, and general office expense.
General and administrative expenses were $23.3 million, $22.6 million and $22.7 million for 2018, 2017 and 2016,
respectively.
General and administrative expenses increased $746,000 in 2018 compared to 2017 primarily due to increase in salary
and employee related expenses.
General and administrative expenses decreased $139,000 in 2017 compared to 2016. The decrease was primarily due to a
$548,000 decrease in professional services expenses related to various outside services, offset partially by a $435,000 increase
in salary and employee related expenses.
Other Income (loss)
Other income (loss) consisted primarily of foreign exchange transactions gains and losses, our share of investment gains
and losses and amortization of basis differences, interest income earned on cash, cash equivalents and restricted cash as well as
interest expense. Other income (loss) was $48,000, $173,000 and ($187,000) for 2018, 2017 and 2016, respectively. Other
income decreased $125,000 from 2017 to 2018 primarily due to our share of investment losses and amortization of basis
differences from WeekenGO in 2018. Other income (loss) increased $360,000 from 2016 to 2017 primarily due to foreign
exchange transaction gains in 2017.
Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes
significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%;
limitations on the deductibility of interest expense and executive compensation; creation of new minimum taxes such as the
base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) tax; and the transition of U.S.
international taxation from a worldwide tax system to a modified territorial tax system, which will result in a one time U.S. tax
liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”).
In connection with the Company's initial analysis of the impact of the Tax Act, the Company has recorded a provisional
estimate of discrete net tax expense of $508,000 for the period ended December 31, 2017. This discrete expense consists of
provisional estimates of zero net expense for the Transition Tax, $173,000 net benefit for the decrease in the Company's
deferred tax liability on unremitted foreign earnings, and $681,000 net expense for remeasurement of the Company's deferred
tax assets/liabilities for the corporate rate reduction.
During the year ended December 31, 2018, we completed our accounting for the income tax effects of the Tax Act. We
did not recognize any additional discrete net tax expense in addition to the provisional amounts recorded at December 31, 2017
for the enactment-date effects of the Tax Act, for a total of $508,000 of discrete net tax expense.
Our income is generally taxed in the U.S., Canada and U.K. Our income tax provision reflects 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 was $3.6 million, $3.1 million and $4.0 million for 2018, 2017 and 2016,
respectively. Our effective tax rate was 44%, 66%, and 40% for 2018, 2017 and 2016, respectively.
Our effective tax rate decreased for the year ended December 31, 2018 compared to the year ended December 31, 2017,
primarily due to the change in the federal statutory tax rate from 35% to 21% in 2018 and the one-time charge related to the
remeasurement of deferred tax assets at the end of 2017. Our effective tax rate increased for the year ended December 31, 2017
compared to the year ended December 31, 2016, primarily due to unfavorable change in our geographic mix of our worldwide
taxable income including foreign net operating losses from Asia Pacific that are not benefited. In addition, the effective tax rate
decreased by $907,000 due primarily to the recognition of certain previously unrecognized tax benefits related to uncertain tax
positions as a result of the settlement of certain tax examinations offset by the provisional estimated net tax expense of
$508,000 resulting from our initial analysis of the impact of the U.S. tax reform passed in December 2017. See Note 5 to the
accompanying consolidated financial statements for more information on our effective tax rate.
39
Segment Information
Asia Pacific
Revenues
(Loss) from operations
(Loss) from operations as a % of revenues
Year Ended December 31,
2018
2017
2016
(In thousands)
$
$
7,859
(6,322)
$
$
7,519
(5,967)
$
$
9,698
(3,890)
(80)%
(79)%
(40)%
Asia Pacific net revenues increased $340,000 in 2018 compared to 2017 (see “Revenues” above). Asia Pacific expenses
increased $695,000 from 2017 to 2018. This increase was primarily due to a $458,000 increase of salary expense and a
$246,000 increase in member management and maintenance costs.
Asia Pacific net revenues decreased $2.2 million in 2017 compared to 2016 (see “Revenues” above). Asia Pacific
expenses decreased $102,000 from 2016 to 2017. This decrease was primarily due to a $470,000 decrease in member
acquisition costs, offset partially by a $188,000 increase of salary expense and a $130,000 increase in rent expense.
Foreign currency movements relative to the U.S. dollar positively impacted our local currency loss from our operations in
Asia Pacific by approximately $127,000 and $35,000 for fiscal years 2018 and 2017, respectively. Foreign currency movements
relative to the U.S. dollar negatively impacted our local currency loss from our operations in Asia Pacific by approximately
$191,000 for fiscal year 2016.
Europe
Revenues
Income from operations
Income from operations as a % of revenues
Year Ended December 31,
2018
2017
2016
(In thousands)
$
$
36,149
4,973
$
$
33,681
2,290
$
$
36,907
5,604
14%
7%
15%
Europe net revenues increased $2.5 million in 2018 compared to 2017 (see “Revenues” above). Europe expenses
decreased $215,000 from 2017 to 2018 primarily due to the decrease in depreciation expense.
Europe net revenues decreased $3.2 million in 2017 compared to 2016 (see “Revenues” above). Europe expenses
increased $88,000 from 2016 to 2017. The increase was primarily due to a $176,000 increase in customer retention costs, a
$173,000 increase in trade and brand marketing expenses, a $136,000 increase in office and facility expenses and a $130,000
increase in professional services expenses, offset partially by a $496,000 decrease in salary and employee related expenses.
Foreign currency movements relative to the U.S. dollar negatively impacted our local currency income from our
operations in Europe by approximately $181,000, $116,000 and $633,000 for 2018, 2017 and 2016, respectively.
North America
Revenues
Income from operations
Income from operations as a % of revenues
Year Ended December 31,
2018
2017
2016
(In thousands)
$
$
67,314
9,587
$
$
65,324
8,222
$
$
67,658
8,472
14%
13%
13%
40
North America net revenues increased $2.0 million in 2018 compared to 2017 (see “Revenues” above). North America
expenses increased $625,000 from 2017 to 2018 primarily due to the increase in trade, commerce and brand marketing
expenses.
North America net revenues decreased $2.3 million in 2017 compared to 2016 (see “Revenues” above). North America
expenses decreased $2.1 million from 2016 to 2017. This decrease was primarily due to a $1.0 million decrease in professional
services expenses, a $786,000 decrease in member acquisition costs and a $637,000 decrease in payments made to third-party
partners of the Travelzoo Network, offset partially by a $557,000 increase in customer refund in Local Deals and Getaway
products.
Liquidity and Capital Resources
As of December 31, 2018, we had $18.0 million in cash and cash equivalents, of which $12.9 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 $22.6 million as of December 31, 2017 primarily as a
result of cash used for repurchases of our common stock and our equity investment in WeekenGO. We expect that cash on hand
will be sufficient to provide for working capital needs for at least the next twelve months.
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net decrease in cash, cash equivalents and restricted cash
Year Ended December 31,
2018
2017
2016
(In thousands)
$
$
$
5,317
(3,685)
(5,292)
(880)
(4,540) $
2,076
$
2,152
(9,712)
1,249
(4,235) $
8,722
(909)
(15,262)
(876)
(8,325)
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 $5.3 million for 2018, which consisted of a net income of $4.7 million,
adjustments for non-cash items of $2.5 million, offset partially a $1.9 million decrease in cash from changes in operating assets
and liabilities. Adjustments for non-cash items primarily consisted of a $1.8 million of depreciation and amortization expense
on property and equipment and a $915,000 of stock-based compensation expense. The decrease in cash from changes in
operating assets and liabilities primarily consisted of a $1.5 million increase in accounts receivable.
Net cash provided by operating activities was $2.1 million for 2017, which consisted of a net income of $3.5 million,
adjustments for non-cash items of $265,000, offset partially a $1.7 million decrease in cash from changes in operating assets
and liabilities. Adjustments for non-cash items primarily consisted of the $2.9 million discontinued operations gain on the sale
of the Fly.com domain name, offset by $2.1 million of depreciation and amortization expense on property and equipment and
$1.0 million of stock-based compensation expense. The decrease in cash from changes in operating assets and liabilities
primarily consisted of $2.5 million decrease in other non-current liabilities primarily associated with the resolution of 2009 IRS
audit related to the sale of our Asia Pacific business segment and $1.6 million decrease in accounts payable, offset partially by
$3.1 million decrease in accounts receivable.
Net cash provided by operating activities was $8.7 million for 2016, which consisted of a net income of $6.6 million,
adjustments for non-cash items of $3.0 million and a $958,000 decrease in cash from changes in operating assets and liabilities.
Adjustments for non-cash items primarily consisted of $2.5 million of depreciation and amortization expense on property and
equipment and $933,000 of stock-based compensation expense. The decrease in cash from changes in operating assets and
liabilities primarily consisted of $2.5 million decrease in accounts payable offset partially by $1.3 million decrease in accounts
receivable.
Cash paid for income tax net of refunds received in 2018, 2017 and 2016 was $4.3 million, $6.2 million and $3.3 million,
respectively.
Net cash used in investing activities for 2018 was $3.7 million. The cash used in investing activities in 2018 was
primarily due to $3.1 million investment in WeekenGO and $752,000 in purchases of property and equipment, offset partially
by $150,000 proceeds from sale of property and equipment. Net cash provided by investing activities for 2017 was $2.2
million. The cash provided by investing activities in 2017 was primarily due to $2.9 million proceeds from sale
41
the Fly.com domain name, offset partially by $738,000 in purchases of property and equipment. Net cash used in investing
activities for 2016 was $909,000 for purchases of property and equipment.
Net cash used in financing activities for 2018, 2017 and 2016 was $5.3 million, $9.7 million and $15.3 million,
respectively. Net cash used in financing activities for the year ended December 31, 2018 and 2017 was primarily due to $5.3
million and $9.7 million cash used in repurchases of our common stock, respectively. Net cash used in financing activities for
the year ended December 31, 2016 was primarily due to $5.7 million payment of related party loan and $9.7 million cash used
in repurchases of our common stock.
See Note 4 to the accompanying 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 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 brands. Since the inception of the voluntary 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 within the required time period, we have incurred expenses of $2.9 million. While future
payments for this voluntary 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.
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 4 — 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.
42
The following summarizes our principal contractual commitments as of December 31, 2018 (in thousands):
Gross Operating Lease
Commitments
Sublease Income
Net Operating Lease
Commitments
Purchase Obligations
Total Commitments
2019
2020
2021
2022
2023
Thereafter
$
5,492
$
(339) $
5,153
$
387
$
4,081
3,195
2,365
2,066
1,187
(344)
(351)
(357)
(271)
—
3,737
2,844
2,008
1,795
1,187
84
—
—
—
—
5,540
3,821
2,844
2,008
1,795
1,187
Total
$
18,386
$
(1,662) $
16,724
$
471
$
17,195
We also have contingencies related to net unrecognized tax benefits, including interest, of approximately $425,000 as of
December 31, 2018. See Note 5 to the accompanying consolidated financial statements for further information.
Critical Accounting Policies and Estimates
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 taxes and loss contingencies. These policies, and our procedures related to these
policies, are described in detail below.
Revenue Recognition
The Company recognizes revenues when control of the promised goods or services is transferred to its customers, in an
amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company generates revenues primarily by delivering advertising on the Travelzoo website, in the Top 20 email
newsletter, in Newsflash and from the Travelzoo Network. The Company also generates transaction-based revenues from the
sales of vouchers through our Local Deals and Getaway e-mail alert services and providing hotel bookings. The Company's
disaggregated revenues are included in "Note 10: Segment Reporting and Significant Customer Information".
For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.
For Top 20 email newsletter and other email products, the Company recognizes revenues when the emails are delivered to
its members.
The Company offers advertising on a cost-per-click basis, which means that an advertiser pays the Company only when a
user clicks on an ad on Travelzoo properties or Travelzoo Network members’ properties. For these customers, the Company
recognizes revenues each time a user clicks on the ad.
The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the
Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisements,
Travelzoo Network properties, or social media properties. For these customers, the Company recognizes revenues each time an
ad is displayed or email delivered.
For transaction based revenues, including products such as Local Deals, Getaway and hotel platform, the Company
evaluates whether it is the principal (i.e., report revenue on a gross basis) versus an agent (i.e., report revenue on a net basis).
The Company reports transaction revenue on a net basis because the supplier is primarily responsible for providing the
underlying service and we do not control the service provided by the supplier prior to its transfer to the customer.
For Local Deals and Getaway products, the company earns a fee for acting as an agent for the sale of vouchers that can be
redeemed for services with third-party merchants. Revenues are presented net of the amounts due to the third-party merchants
for fulfilling the underlying services. Certain merchant contracts allow the Company to retain the proceeds from unredeemed
vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records
the estimate in the same period as the voucher sale.
43
Commission revenue related to our hotel platform is recognized ratably over the period of guest stay, net of an allowance
for cancellations based upon historical patterns. For arrangements for booking non-cancelable reservations where the
Company’s performance obligation is deemed to be the successful booking of a hotel reservation, we record revenue for the
commissions upon completion of the hotel booking.
The Company’s contracts with customers may include multiple performance obligations in which the Company allocates
revenues to each performance obligation based on its standalone selling price. The Company determines standalone selling
price based on its overall pricing objectives, taking into consideration the type of services, geographical region of the
customers, normal rate card pricing and customary discounts. Standalone selling price is generally determined based on the
prices charged to customers when the product is sold separately.
The Company relies upon the following practical expedients and exemptions allowed for in the revenue recognition
accounting standard. The Company expenses sales commissions when incurred because the amortization period would have
been one year or less. These costs are recorded in sales and marketing expenses. In addition, the Company does not disclose the
value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b)
contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
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
businesses that are providing the vouchered services, 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 and the portion of which represents
our fee 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.
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. In addition to local country tax laws and regulations, our income tax rate depends on the extent
that our foreign earnings are taxed by the U.S. through new provisions under the Tax Act such as the new GILTI tax and BEAT
or as a result of our indefinite reinvestment assertion. Indefinite reinvestment is determined by management’s judgment about
and intentions concerning our future operations.
44
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, credits, 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, 2018, 2017 and 2016, our effective tax rates were 44%, 66%, and 40%, 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,
existing or new uncertain tax matters that may arise and require changes in tax reserves, 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 5 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. Please refer to Note 4 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.
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 have performed a sensitivity analysis as of December 31, 2018, 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, 2018. The sensitivity analysis indicated that a
hypothetical 10% adverse movement in foreign currency exchange rates would result in an incremental $1,000 foreign
exchange gain for the year ended December 31, 2018.
45
Item 8. Financial Statements and Supplementary Data
TRAVELZOO
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of PricewaterhouseCoopers LLP - Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
47
49
50
51
52
53
54
46
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Travelzoo
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Travelzoo and its subsidiaries (the “Company”) as of
December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for
revenues from contracts with customers in 2018.
Basis for Opinions
The Company'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 Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
47
Definition and Limitations of Internal Control over Financial Reporting
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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (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 the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 8, 2019
We have served as the Company’s auditor since 2016.
48
December 31,
2018
December 31,
2017
$
18,017
$
22,553
12,646
389
167
1,947
33,166
685
1,645
1,444
3,790
2,694
11,769
517
259
2,141
37,239
548
1,516
1,448
4,921
—
43,424
$
45,672
17,129
$
7,853
1,339
489
26,810
418
2,137
—
120
—
18,153
(4,214)
14,059
19,105
8,702
825
961
29,593
373
2,628
—
125
—
16,550
(3,597)
13,078
45,672
$
43,424
$
$
$
TRAVELZOO
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
Current assets:
Cash and cash equivalents
ASSETS
Accounts receivable, less allowance for doubtful accounts of $692 and $315 as of December 31,
2018 and 2017, respectively
Income tax receivable
Deposits
Prepaid expenses and other
Total current assets
Deposits and other
Deferred tax assets
Restricted cash
Property and equipment, net
Investment in WeekenGO
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other
Deferred revenue
Income tax payable
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; 11,962 shares issued and outstanding
as of December 31, 2018 and 12,462 shares issued and outstanding as of December 31, 2017)
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.
49
TRAVELZOO
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
Total operating expenses
Income from continuing operations
Other income (loss), net
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Income per share—basic:
Continuing operations
Discontinued operations
Net income per share—basic
Income per share—diluted:
Continuing operations
Discontinued operations
Net income per share—diluted
Year Ended December 31,
2018
2017
2016
$
111,322
$
106,524
$
114,263
12,268
99,054
58,519
8,993
23,304
90,816
8,238
48
8,286
3,625
4,661
—
4,661
0.38
—
0.38
0.37
—
0.37
$
$
$
$
$
$
12,909
93,615
57,288
9,224
22,558
89,070
4,545
173
4,718
3,126
1,592
1,938
3,530
0.12
0.15
0.27
0.12
0.15
0.27
$
$
$
$
$
$
13,855
100,408
58,429
9,096
22,697
90,222
10,186
(187)
9,999
3,992
6,007
624
6,631
0.43
0.04
0.47
0.43
0.04
0.47
$
$
$
$
$
$
Shares used in computing basic net income per share
Shares used in computing diluted net income per share
12,323
12,510
12,882
12,894
13,997
13,997
See accompanying notes to consolidated financial statements.
50
TRAVELZOO
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustment
Total comprehensive income
Year Ended December 31,
2018
2017
2016
4,661
$
3,530
$
6,631
(617)
4,044
190
$
3,720
$
121
6,752
$
$
See accompanying notes to consolidated financial statements.
51
TRAVELZOO
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
Amount
Treasury
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balances, January 1, 2016
14,518
$
150
$
— $
7,759
$ 17,386
$
Stock-based compensation expense
—
Repurchase and retirement of
common stock
Tax benefit shortfall from
forfeiture/cancellation of stock
options
Foreign currency translation
adjustment
Net income
Balances, December 31, 2016
Stock-based compensation expense
Repurchase and retirement of
common stock
Foreign currency translation
adjustment
Net income
Balances, December 31, 2017
Stock-based compensation expense
Repurchase and retirement of
common stock
Foreign currency translation
adjustment
Net income
Cumulative effect adjustment from
the adoption of ASC 606
—
(15)
—
—
—
135
—
(1,056)
—
—
—
13,462
—
(1,000)
(10)
—
—
12,462
—
(500)
—
—
—
—
—
125
—
(5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
933
—
(7,189)
(2,301)
(1,503)
—
—
—
1,006
—
—
6,631
21,716
—
(1,006)
(8,696)
—
—
—
915
—
3,530
16,550
—
(3,908) $
—
21,387
933
—
—
121
—
(3,787)
—
—
190
—
(3,597)
—
(9,505)
(1,503)
121
6,631
18,064
1,006
(9,712)
190
3,530
13,078
915
(915)
(4,372)
—
(5,292)
—
—
—
—
4,661
1,314
(617)
—
(617)
4,661
—
(4,214) $
1,314
14,059
Balances, December 31, 2018
11,962
$
120
$
— $
— $ 18,153
$
See accompanying notes to consolidated financial statements.
52
TRAVELZOO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Discontinued operations gain on sale of Fly.com domain name
Stock-based compensation
Deferred income tax
Loss on equity investment in WeekenGO
Net foreign currency effect
Other
Changes in operating assets and liabilities:
Accounts receivable
Income tax receivable
Prepaid expenses and other
Accounts payable
Accrued expenses and other
Income tax payable
Other non-current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of Fly.com domain name
Proceeds from sale of property and equipment
Investment in WeekenGO
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Acquisition of the Asia Pacific business
Payment of loan to related party
Repurchase of common stock
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net
Cash paid for interest
Year Ended December 31,
2018
2017
2016
$
4,661
$
3,530
$
6,631
1,828
—
915
(336)
218
42
(119)
(1,519)
129
104
(25)
—
(392)
(189)
5,317
(752)
—
150
(3,083)
(3,685)
—
—
(5,292)
(5,292)
(880)
(4,540)
24,001
2,075
(2,890)
1,006
309
—
(354)
118
3,065
28
(487)
(1,588)
(475)
261
(2,522)
2,076
(738)
2,890
—
2,152
—
—
(9,712)
(9,712)
1,249
(4,235)
28,236
2,530
—
933
(199)
—
(315)
100
1,313
816
957
(2,463)
(1,747)
287
(121)
8,722
(909)
—
—
(909)
58
(5,658)
(9,662)
(15,262)
(876)
(8,325)
36,561
$
$
$
19,461
$
24,001
$
28,236
4,276
$
— $
6,201
$
— $
3,309
88
See accompanying notes to consolidated financial statements.
53
TRAVELZOO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
(a) The Company and Basis of Presentation
Travelzoo® provides our members insider deals and one-of-a-kind experiences personally reviewed by one of our deal
experts around the globe. With more than 25 offices worldwide, we have our finger on the pulse of outstanding travel,
entertainment, and lifestyle experiences. For over 15 years we have worked in partnership with top travel suppliers—our long-
standing relationships give Travelzoo members access to the very best deals. Travelzoo's revenues are generated primarily from
advertising fees.
Our publications and products include the Travelzoo website, the Travelzoo iPhone and Android apps, the Travelzoo Top
20 e-mail newsletter, the Newsflash e-mail alert service, and the Travelzoo Network, a network of third-party websites that list
travel deals published by Travelzoo. The Travelzoo website includes 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.
Ralph Bartel, who founded Travelzoo (the "Company") and who is a Director of the Company is the sole beneficiary of
the Ralph Bartel 2005 Trust, which is the controlling shareholder of Azzurro Capital Inc. ("Azzurro"). As of December 31,
2018, Azzurro is the Company's largest stockholder, holding approximately 50.5% of the Company's outstanding shares.
During the first quarter of 2017, the Company discontinued operations of its SuperSearch and Fly.com products to focus
on its global Travelzoo® brand and reflected the revenues and expenses for these products as discontinued operations, net of
taxes, for the current and prior periods presented. See "Note 11: Discontinued Operations" for further information.
The consolidated financial statements have been prepared in conformity with generally accepted accounting principles
(“GAAP”) in the United States (“U.S.”). The consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
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 U.S. Significant estimates included in the consolidated
financial statements and related notes include revenue recognition, income taxes, stock-based compensation, loss
contingencies, and useful lives of property, plant and equipment. Actual results could differ materially from those estimates.
In April 2018, the Company entered into an agreement with WeekenGO, a start-up company in Germany. WeekenGO
uses new technology to promote vacation packages. The Company invested $3.0 million in WeekenGO for a 25% ownership
interest. The Company accounts for this private company investment using the equity method of accounting by recording its
share of the results of WeekenGO in Other income (expense), net on a one-quarter lag basis. In accounting for the investment,
the Company allocated $1.0 million of its purchase price to net tangible assets and allocated approximately $485,000 of the
purchase to technology-related intangible assets to be amortized over a three-year life. The remaining $1.5 million of the
purchase price was allocated to goodwill. The Company recorded $218,000 for its share of WeekenGO losses and amortization
of basis differences in 2018. This equity investment is reported as a long-term investment on the Company's consolidated
balance sheet.
WeekenGO signed a $2.1 million insertion order for advertising with the Company in 2018. The Company’s advertising
revenues from WeekenGO in the year ended December 31, 2018 were $319,000.
(b) Revenue Recognition
The Company recognizes revenues when control of the promised goods or services is transferred to its customers, in an
amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company generates revenues primarily by delivering advertising on the Travelzoo website, in the Top 20 email
newsletter, in Newsflash and from the Travelzoo Network. The Company also generates transaction-based revenues from the
sales of vouchers through our Local Deals and Getaway e-mail alert services and providing hotel bookings. The Company's
disaggregated revenues are included in "Note 10: Segment Reporting and Significant Customer Information".
54
For fixed-fee website advertising, the Company recognizes revenues ratably over the contracted placement period.
For Top 20 email newsletter and other email products, the Company recognizes revenues when the emails are delivered to
its members.
The Company offers advertising on a cost-per-click basis, which means that an advertiser pays the Company only when a
user clicks on an ad on Travelzoo properties or Travelzoo Network members’ properties. For these customers, the Company
recognizes revenues each time a user clicks on the ad.
The Company also offers advertising on other bases, such as cost-per-impression, which means that an advertiser pays the
Company based on the number of times their advertisement is displayed on Travelzoo properties, email advertisements,
Travelzoo Network properties, or social media properties. For these customers, the Company recognizes revenues each time an
ad is displayed or email delivered.
For transaction based revenues, including products such as Local Deals, Getaway and hotel platform, the Company
evaluates whether it is the principal (i.e., report revenue on a gross basis) versus an agent (i.e., report revenue on a net basis).
The Company reports transaction revenue on a net basis because the supplier is primarily responsible for providing the
underlying service and we do not control the service provided by the supplier prior to its transfer to the customer.
For Local Deals and Getaway products, the company earns a fee for acting as an agent for the sale of vouchers that can be
redeemed for services with third-party merchants. Revenues are presented net of the amounts due to the third-party merchants
for fulfilling the underlying services. Certain merchant contracts allow the Company to retain the proceeds from unredeemed
vouchers. With these contracts, the Company estimates the value of vouchers that will ultimately not be redeemed and records
the estimate in the same period as the voucher sale.
Commission revenue related to our hotel platform is recognized ratably over the period of guest stay, net of an allowance
for cancellations based upon historical patterns. For arrangements for booking non-cancelable reservations where the
Company’s performance obligation is deemed to be the successful booking of a hotel reservation, we record revenue for the
commissions upon completion of the hotel booking.
The Company’s contracts with customers may include multiple performance obligations in which the Company allocates
revenues to each performance obligation based on its standalone selling price. The Company determines standalone selling
price based on its overall pricing objectives, taking into consideration the type of services, geographical region of the
customers, normal rate card pricing and customary discounts. Standalone selling price is generally determined based on the
prices charged to customers when the product is sold separately.
The Company relies upon the following practical expedients and exemptions allowed for in the revenue recognition
accounting standard. The Company expenses sales commissions when incurred because the amortization period would have
been one year or less. These costs are recorded in sales and marketing expenses. In addition, the Company does not disclose the
value of unsatisfied performance obligations for (a) contracts with an original expected length of one year or less and (b)
contracts for which it recognizes revenues at the amount to which it has the right to invoice for services performed.
(c) Reserve for Refunds to Members
The Company records an estimated reserve for refunds to members 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 reserve for refunds to member. 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 refunds to members 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.
55
(d) Allowance for Doubtful Accounts
The Company records a provision for doubtful accounts based on its 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, 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 the 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) 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 $8.5 million, $8.6 million and $10.4 million for years ended December 31, 2018,
2017 and 2016, respectively.
(f) Operating Leases
The Company leases facilities and equipment under various operating leases. These lease agreements generally include
rent holidays, rent escalation clauses and renewal periods at the Company's option. The Company recognizes expense for
scheduled rent increases on a straight-line basis over the lease term beginning with the date it takes possession of the leased
facilities and equipment. Leasehold improvements made either at the inception of the lease or during the lease term are
amortized over the current lease term, or estimated life, if shorter.
(g) 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. See Note 8 to the accompanying consolidated financial statements for a
further discussion on stock-based compensation.
(h) 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. Total foreign
currency transaction net gain of $135,000 and $158,000 for 2018 and 2017, respectively, and total foreign currency transaction
net losses of $211,000 for 2016, are included in Other income (loss), net in the Company’s consolidated statements of
operations.
(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.
56
Significant judgment is required in evaluating the Company's uncertain tax positions and determining the Company's
provision for income taxes. Although the Company believes it has adequately reserved for its uncertain tax positions, no
assurance can be given that the final tax outcome of these matters will not be different. The Company adjusts 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.
(j) Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income (loss). Other
comprehensive income (loss) refers to certain changes in equity that are excluded from net income. For the Company, other
comprehensive income (loss) includes foreign currency translation adjustments. Total comprehensive income (loss) for all
periods presented has been disclosed in the consolidated statements of comprehensive loss.
(k) 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, 2018 and 2017, the Company did not have any customers that accounted for 10% or more of accounts
receivable.
(l) Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less on the date of purchase.
(m) 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.
(n) 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. No impairment loss was
recognized during years ended December 31, 2018, 2017 and 2016.
57
(o) Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standard update ASU
2016-02, "Leases," codified in Accounting Standard Codification 842 ("ASC 842"), which requires that lease arrangements
longer than 12 months result in an entity recognizing an asset and liability on its balance sheet. 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. For operating leases with terms longer than 12 months, the
Company will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use
the underlying asset for the lease term. In July 2018, the FASB issued ASU No. 2018-10, "Codification Improvements to Topic
842, Leases" and ASU 2018-11, "Leases (Topic 842): Targeted Improvements." ASU No. 2018-10 made improvements to many
aspects of the guidance in ASC 842. ASU 2018-11 made transition requirements less burdensome and provided lessors with a
practical expedient for separating non-lease components from lease components. Entities may elect not to recast the
comparative periods presented when transitioning to ASC 842. ASU No. 2018-10 has the same effective date and transition
requirements as ASC 842. ASU No. 2018-11 has the same effective date as ASC 842 for companies that have not early adopted
ASC 842. For companies that have early adopted ASC 842, it is effective upon issuance, but can only be adopted by companies
either at the beginning of the company’s first reporting period after issuance or the company’s mandatory ASC 842 effective
date. The Company expects to elect the transition package expedients and the optional transition method for adoption. The
Company is still in the process of finalizing its evaluation of the effect of ASC 842 on the Company’s financial statements and
disclosures. The Company will finalize its accounting assessment and quantitative impact of the adoption during the first
quarter of fiscal year 2019.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, "Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive Income," which allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, eliminating the stranded tax
effects resulting from the Tax Cuts and Jobs Act. However, the new guidance only applies to the tax effects resulting from the
Tax Cuts and Jobs Act and does not change the underlying guidance to recognize the effect of a change in tax laws or rates in
income from continuing operations. The amendments are effective for all entities for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of
evaluating the impact of the adoption on its financial position, results of operations and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-
Changes to the Disclosure Requirements for Fair Value Measurement." Entities will no longer be required to disclose the
amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be
required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value
measurements. The guidance also modifies certain disclosure requirements for nonpublic entities to make them less
burdensome. ASU No. 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and for interim
periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that
eliminate or modify the requirements. The Company is currently in the process of evaluating the impact of the adoption on its
financial position, results of operations and cash flows.
In August 2018, the FASB issued ASU No. 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement That is a Service Contract." The new guidance required a customer in a cloud computing
arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which
implementation costs to capitalize as assets or expense as incurred. The guidance is effective for calendar-year public business
entities in 2020. For all other calendar-year entities, it is effective for annual periods beginning in 2021 and interim periods in
2022. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption on its
financial position, results of operations and cash flows.
(p) Recently Adopted Accounting Pronouncements
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments,"
which addresses eight classification issues related to the statement of cash flows. In November 2016, the FASB issued ASU
2016-18, "Statement of Cash Flows: Restricted Cash," which addresses classification and presentation of changes in restricted
cash on the statement of cash flows. The standard requires that restricted cash and restricted cash equivalents be included as
components of total cash and cash equivalents as presented on the statement of cash flows. The Company adopted ASU
2016-15 and ASU 2016-18 using a retrospective transition method effective January 1, 2018 and applied to the periods
presented on the consolidated statements of cash flows.
Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or our intention to
use the cash for a specific purpose. Our restricted cash primarily relates to refundable deposits and funds held in escrow.
58
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
consolidated balance sheets to the total amounts shown in the statements of cash flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash in the consolidated
statements of cash flow
December 31,
2018
December 31,
2017
$
$
18,017
$
1,444
19,461
$
22,553
1,448
24,001
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 for annual periods in fiscal years beginning after December 15, 2017 (as
amended in August 2015 by ASU 2015-14, "Deferral of the Effective Date"). In December 27, 2016, FASB issued ASU
2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," which addresses
loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type
contracts, and various disclosures. ASU 2016-20 will go into effect once ASU 2014-09 takes effect. The Company adopted this
standard effective January 1, 2018 using the modified retrospective method, which was only applied to contracts that were not
completed as of the adoption date, with a cumulative adjustment to retained earnings.
The cumulative effect of the revenue accounting changes made to the Company's consolidated balance sheet as of January
1, 2018 primarily consists of a decrease in accounts payable related to the merchant payable of $1.6 million and a decrease of
$270,000 of net deferred tax assets for a net cumulative effect increase of retained earnings of $1.3 million. These changes were
due primarily to the new revenue guidance requirement to recognize revenue related to unredeemed Local Deals and Getaway
vouchers for selected deals, included in our Europe segment, based upon estimates at the time of sale of the vouchers rather
than the Company's past practice of waiting to recognize this revenue until expiration of the legal obligation.
The changes in revenue recognition policies under the new revenue guidance were primarily the change described above
for unredeemed vouchers as well as recognizing cancelable hotel platform commissions over the period of the hotel stay versus
previously upon checkout; the impact of these changes to the Company's consolidated financial statements was not material for
the year ended December 31, 2018.
Deferred revenue primarily consists of customer prepayments and undelivered performance obligations related to the
Company’s contracts with multiple performance obligations. At January 1, 2018, $825,000 was recorded as deferred revenue.
For the year ended December 31, 2018, the Company recognized revenue of $693,000 of the January 1, 2018 deferred revenue
balance. At December 31, 2018, the deferred revenue balance was $1.3 million.
Note 2: Net Income Per Share
Basic net income per share is computed using the weighted-average number of common shares outstanding for the
period. Diluted net income per share is computed by adjusting the weighted-average number of common shares outstanding for
the effect of dilutive potential common shares outstanding during the period. Potential common shares included in the diluted
calculation consist of incremental shares issuable upon the exercise of outstanding stock options calculated using the treasury
stock method.
59
The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share
amounts):
Numerator:
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Denominator:
Weighted average common shares—basic
Effect of dilutive securities: stock options
Weighted average common shares—diluted
Income per share—basic:
Continuing operations
Discontinued operations
Net income per share—basic
Income per share—diluted:
Continuing operations
Discontinued operations
Net income per share—diluted
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
$
4,661
—
4,661
12,323
187
12,510
0.38
—
0.38
0.37
—
0.37
$
$
$
$
$
$
1,592
1,938
3,530
12,882
12
12,894
0.12
0.15
0.27
0.12
0.15
0.27
$
$
$
$
$
$
6,007
624
6,631
13,997
—
13,997
0.43
0.04
0.47
0.43
0.04
0.47
For the years ended December 31, 2018, 2017 and 2016, options to purchase 200,000, 550,000 and 600,000 shares of
common stock, respectively, were not included in the computation of diluted net income per share because the effect would
have been anti-dilutive.
Note 3: 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,
2018
2017
1,780
167
1,947
$
$
1,859
282
2,141
December 31,
2018
2017
3,353
$
7,814
4,383
6,140
21,690
(17,900)
3,790
$
3,337
8,002
4,383
6,629
22,351
(17,430)
4,921
$
$
$
$
Depreciation expense was $1.6 million, $1.8 million and $2.1 million for the years ended December 31, 2018, 2017 and
2016, respectively.
60
Amortization of capitalized internal-use software and website development costs was $247,000, $321,000 and $460,000
for the years ended December 31, 2018, 2017 and 2016, respectively.
Changes to the allowance for doubtful accounts and reserve for member refunds are as follows (in thousands):
Balance at January 1, 2016
Additions — charged to costs and expenses, or contra revenue, net
Deductions — recoveries of amounts previously charged-off
Deductions — write-offs
Balance at December 31, 2016
Additions — charged to costs and expenses, or contra revenue, net
Deductions — recoveries of amounts previously charged-off
Deductions — write-offs
Balance at December 31, 2017
Additions — charged to costs and expenses, or contra revenue, net
Deductions — recoveries of amounts previously charged-off
Deductions — write-offs
Balance at December 31, 2018
Allowance
for doubtful
accounts
Reserve for
member
refunds
$
384
$
107
(89)
(107)
295
158
(125)
(13)
315
482
(104)
(1)
692
$
$
530
507
—
(563)
474
942
—
(886)
530
688
—
(839)
379
Local Deals and Getaway merchant payable included in accounts payable was $11.8 million and $14.6 million, as of
December 31, 2018 and 2017, 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,
2018
2017
$
$
1,875
$
2,813
382
2,266
517
7,853
$
1,727
3,540
539
2,396
500
8,702
At December 31, 2018 and 2017, accounts receivable, accounts payable and accrued expenses 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.
Note 4: 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. 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 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.
61
During 2010 through 2014, the Company became subject to unclaimed property audits of various states in the United
States related to the above unexchanged promotional shares and completed settlements with all states. Although the Company
has settled the 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 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 Company did not make any payments under this voluntary program for the year ended
December 31, 2018. The accompanying consolidated financial statements include charges in general and administrative
expenses of $1,000 and $2,000 for the years ended December 31, 2017 and 2016, respectively, for payments made under this
voluntary program.
The total cost of this voluntary program cannot be reliably estimated 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
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,
the U.K., and the U.S. under operating leases which expire between March 2019 and November 2024. Rent expense was $5.8
million, $5.8 million and $5.3 million for years ended December 31, 2018, 2017 and 2016, 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. The Company’s rental income from sublease was approximately $123,000 for the year ended December 31, 2018.
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 suppliers. These minimum obligations are less than the Company's projected use for those periods. Payments may
be more than the minimum obligations based on actual use.
The following table summarizes the Company's principal contractual commitments as of December 31, 2018 (in
thousands):
Gross Operating
Lease Commitments
Sublease Income
Net Operating Lease
Commitments
Purchase Obligations
Total Commitments
$
2019
2020
2021
2022
2023
Thereafter
$
5,492
4,081
3,195
2,365
2,066
1,187
(339) $
(344)
(351)
(357)
(271)
—
$
5,153
3,737
2,844
2,008
1,795
1,187
$
387
84
—
—
—
—
5,540
3,821
2,844
2,008
1,795
1,187
Total
$
18,386
$
(1,662) $
16,724
$
471
$
17,195
62
Note 5: Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes
significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%;
limitations on the deductibility of interest expense and executive compensation; creation of the base erosion anti-abuse tax
(“BEAT”), a new minimum tax; and the transition of U.S. international taxation from a worldwide tax system to a modified
territorial tax system. The change to a modified territorial tax system resulted in a one-time U.S. tax liability on those earnings
which have not previously been repatriated to the U.S. (the “Transition Tax”), with future distributions not subject to U.S. federal
income tax when repatriated. A majority of the provisions in the Tax Act are effective January 1, 2018.
In response to the Tax Act, the SEC staff issued guidance on accounting for the tax effects of the Tax Act. The guidance
provides a one-year measurement period for companies to complete the accounting. The Company reflected the income tax effects
of those aspects of the Tax Act for which the accounting is complete. To the extent a company's accounting for certain income tax
effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, a company should record a provisional estimate
in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it
should continue to apply the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
In connection with the Company's initial analysis of the impact of the Tax Act, the Company has recorded a provisional
estimate of discrete net tax expense of $508,000 for the period ended December 31, 2017. This discrete expense consists of
provisional estimates of zero expense for the Transition Tax, $173,000 net benefit for the decrease in the Company's deferred tax
liability on unremitted foreign earnings, and $681,000 net expense for remeasurement of the Company's deferred tax assets and
liabilities for the corporate rate reduction.
During the year ended December 31, 2018, we completed our accounting for the income tax effects of the Tax Act. We
did not recognize any additional discrete net tax expense in addition to the provisional amounts recorded at December 31, 2017
for the enactment-date effects of the Tax Act, for a total of $508,000 of discrete net tax expense.
As of December 31, 2018, the Company is permanently reinvested in certain Non-U.S. subsidiaries and does not have a
deferred tax liability related to its undistributed foreign earnings. The estimated amount of the unrecognized deferred tax
liability attributed to future withholding taxes on dividend distributions of undistributed earnings for certain non-U.S.
subsidiaries, which the Company intends to reinvest the related earnings indefinitely in its operations outside the U.S., is
approximately $498,000 at December 31, 2018.
The components of income before income tax expense are as follows (in thousands):
U.S.
Foreign
Year Ended December 31,
2018
2017
2016
$
$
8,677
(391)
8,286
$
$
6,953
(2,235)
4,718
$
$
7,525
2,474
9,999
63
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, 2018
Federal
State
Foreign
Year Ended December 31, 2017
Federal
State
Foreign
Year Ended December 31, 2016
Federal
State
Foreign
Current
Deferred
(In thousands)
Total
$
$
$
$
$
$
1,938
$
650
1,461
4,049
1,988
198
905
3,091
2,403
395
1,391
$
$
$
$
4,189
$
(260) $
22
(186)
(424) $
$
24
(64)
75
35
$
(123) $
23
(97)
(197) $
1,678
672
1,275
3,625
2,012
134
980
3,126
2,280
418
1,294
3,992
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
Change of valuation allowance
Uncertain tax positions
Foreign income taxed at different rates
U.S. tax reform (the Tax Act)
Tax on undistributed earnings
Non-deductible expenses and other
Total income tax expense
Year Ended December 31,
2018
2017
2016
$
1,738
$
1,651
$
586
1,565
(177)
(273)
—
—
186
113
1,577
(907)
72
681
(173)
112
$
3,625
$
3,126
$
3,500
276
895
(132)
(509)
—
—
(38)
3,992
64
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):
Deferred tax assets:
Net operating loss carryforwards
State income taxes
Accruals and allowances
Stock based compensation
Unrealized foreign exchange losses
Deferred revenue
Deferred rent
Total deferred tax assets
Valuation allowance
Total deferred tax assets net of valuation allowance
Deferred tax liabilities:
Deferred rent
Property, equipment and intangible assets
Total deferred tax liabilities
Net deferred tax assets
December 31,
2018
2017
$
9,805
$
9,250
82
292
910
151
377
—
11,617
(9,723)
1,894
(80)
(169)
(249)
1,645
$
$
65
287
744
191
87
418
11,042
(9,249)
1,793
—
(277)
(277)
1,516
Changes in the deferred tax assets valuation allowance for the years ended December 31, 2016, 2017 and 2018 are as
follows (in thousands):
Deferred tax assets valuation allowance
2016
2017
2018
Balance at the
beginning of the
year
$
$
$
6,940
7,168
9,249
Charged (Credited)
to expenses
Charged (Credited)
to other account (*)
Balance at end of
year
895
1,577
1,565
(667)
504
(1,091)
$
$
$
7,168
9,249
9,723
(*) Amounts not charged (credited) to expenses are charged (credited) to stockholder's equity or deferred tax assets (liabilities).
As of December 31, 2018, the Company has a valuation allowance of approximately $9.7 million related to foreign net
operating loss carryforwards (“NOL”) of approximately $40.6 million for which it is more likely than not that the tax benefit
will not be realized. The amount of the valuation allowance represented an increase of approximately $474,000 over the
amount recorded as of December 31, 2017, and was due to the increase in foreign operating losses. If not utilized, foreign NOL
of $24.0 million may be carried forward indefinitely, and foreign NOL of $16.5 million will expire at various times between
2019 and 2027.
65
The total amount of gross unrecognized tax benefits was $239,000 as of December 31, 2018, of which up to $213,000
would affect the Company’s effective tax rate if realized. A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits in 2016, 2017, and 2018 is as follows (in thousands):
Gross unrecognized tax benefits balance at January 1, 2016
Increase related to prior year tax positions
Lapse of statute of limitations
Gross unrecognized tax benefits balance at December 31, 2016
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Settlements
Gross unrecognized tax benefits balance at December 31, 2017
Increase related to current year tax positions
Settlements
Gross unrecognized tax benefits balance at December 31, 2018
$
$
2,670
10
(323)
2,357
21
(737)
4
(920)
725
15
(501)
239
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, 2018, the
Company had approximately $212,000 in accrued interest, of which $34,000 was a net increase in the amount accrued in 2018.
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 2011 and is subject to California
tax examinations for years after 2006. The material foreign jurisdictions where the Company is subject to potential
examinations by tax authorities are the France, Germany, Spain and United Kingdom for tax years after 2010.
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.
Note 6: Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated balances of other comprehensive loss (in thousands):
Beginning balance
Other comprehensive income (loss) due to foreign currency
translation, net of tax
Ending balance
Year Ended December 31,
2018
2017
2016
(3,597) $
(3,787) $
(3,908)
(617)
(4,214) $
190
(3,597) $
121
(3,787)
$
$
There were no amounts reclassified from accumulated other comprehensive income (loss) for the years ended December
31, 2018, 2017 and 2016. Accumulated other comprehensive income (loss) consists of foreign currency translation gain or loss.
Note 7: 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
66
benefit plans were approximately $2.0 million, $2.0 million and $1.9 million for the years ended December 31, 2018, 2017 and
2016, respectively.
Note 8: 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.
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. During 2014, 25,000 options were canceled and 25,000 options were forfeited upon the
departure of an executive. As of December 31, 2018, 50,000 of the options were vested and outstanding.
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 became exercisable quarterly starting March 31, 2016. The options expire
in September 2025. As of December 31, 2018, 400,000 options were vested and outstanding.
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. The
options expire in March 2026. In 2017, 37,500 options were forfeited and 12,500 options were canceled upon the departure of
an executive and the compensation expense of $19,000 was reversed. In 2018, 50,000 options were forfeited upon the departure
of an executive and the compensation expense of $59,000 was reversed. As of December 31, 2018, 50,000 options were vested
and outstanding.
In October 2017, the Company granted an executive stock options to purchase 400,000 shares of common stock with an
exercise price of $6.95, of which 50,000 shares are exercisable quarterly starting March 31, 2018 and ending on December 31,
2019. The options expire in October 2027. As of December 31, 2018, 400,000 options were outstanding and 200,000 options of
these options were vested. As of December 31, 2018, there was approximately $573,000 of unrecognized stock-based
compensation expense relating to these options. This amount is expected to be recognized over 1.0 years.
In April 2018, the Company granted an employee stock options to purchase 50,000 shares of common stock with an exercise
price of $10.50. The options vest in twelve equal installments. The first installment vested on April 26, 2018, and the remaining
eleven installments vest from June 30, 2018 to December 31, 2020. As of December 31, 2018, 50,000 options were outstanding
and 16,667 of these options were vested. As of December 31, 2018, there was approximately $161,000 of unrecognized stock-
based compensation expense relating to these options. This amount is expected to be recognized over 2.0 years.
In May 2018, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise price
of $14.70, of which 12,500 options will vest and become exercisable annually starting on May 2019. As of December 31, 2018,
50,000 options were outstanding and none of these options was vested. As of December 31, 2018, there was
approximately $302,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected
to be recognized over 3.4 years.
In June 2018, the Company granted a nonemployee consultant options to purchase 100,000 shares of common stock with
an exercise price of $17.75, of which 20,000 options vested and became exercisable on June 8, 2018, 30,000 shares vest no later
than July 31, 2018 if certain performance targets were met, and 50,000 shares vest no later than June 30, 2019 if certain performance
targets are met. The Company used the contractual life when determining the value of this option. The performance targets for
the 30,000 share options were not met by July 31, 2018 and the nonemployee consultant ceased to provide services to the Company.
As a result, 80,000 unvested shares of options were forfeited and 20,000 vested options were canceled in 2018.
In June 2018, the Company granted an employee options to purchase 50,000 shares of common stock with an exercise
price of $16.65, of which 12,500 options will vest and become exercisable annually starting on June 2019. As of December 31,
2018, 50,000 options were outstanding and none of these options was vested. As of December 31, 2018, there was
approximately $352,000 of unrecognized stock-based compensation expense relating to these options. This amount is expected
to be recognized over 3.5 years.
The Company recorded $915,000, $1.0 million and $933,000 of stock-based compensation in general and administrative
expenses for fiscal years 2018, 2017 and 2016, respectively.
The Company utilized the Black-Scholes option pricing model to value the stock options. 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
67
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 Company accounted for forfeitures as they occur. The historical volatility was calculated based upon implied
volatility of the Company's historical stock prices.
The fair value of 2018, 2017 and 2016 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
2018
2017
2016
$
6.63
$
3.11
$
4.73
46%
2.84%
—
5.70
46%
2.06%
—
5.65
58%
1.38%
—
6.25
As of December 31, 2018, there was approximately $815,000 of unrecognized stock-based compensation expense related
to outstanding 2018 stock options, expected to be recognized over 2.9 years, and approximately $573,000 of unrecognized
stock-based compensation expense related to outstanding 2017 stock options, expected to be recognized over 1.0 year. There
was no unrecognized stock-based compensation expense relating to 2016 and 2012 stock options grants.
Option activities during the years ended December 31, 2016, 2017, and 2018 were as follows:
Outstanding at January 1, 2016
Option Granted
Options forfeited and canceled
Outstanding at December 31, 2016
Option Granted
Options forfeited and canceled
Outstanding at December 31, 2017
Option Granted
Options forfeited and canceled
Outstanding at December 31, 2018
Exercisable and fully vested at
December 31, 2018
Outstanding at December 31, 2018 and
expected to vest thereafter
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
(In thousands)
775,000
$
$
150,000
(325,000) $
$
600,000
400,000
$
(50,000) $
$
950,000
250,000
$
(150,000) $
$
1,050,000
716,667
333,333
$
$
12.78
5.53 years
8.55
16.09
9.93
6.95
8.55
8.75
8.55 years
8.48 years
15.47
14.68
0
9.50
7.53 years
9.31
7.16 years
9.92
8.31 years
$
$
$
$
$
$
$
120
—
—
—
1,920
1,344
576
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, 2018, 2017 and 2016 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, 2018, 2017, and 2016. This amount changes based on the fair value of the
Company’s stock. The Company’s policy is to issue shares from the authorized shares to fulfill stock option exercises.
68
Outstanding options at December 31, 2018 were as follows:
Exercise Price
Shares
Outstanding
Options Outstanding
Weighted-Average
Remaining
Contractual
Life
Weighted-Average
Exercise Price
Shares Outstanding
and Exercisable
$
$
$
$
$
$
$
28.98
8.07
8.55
6.95
10.50
14.70
16.65
50,000
400,000
50,000
400,000
50,000
50,000
50,000
3.07 years
6.75 years
7.19 years
8.84 years
9.32 years
9.37 years
4.47 years
$
$
$
$
$
$
$
28.98
8.07
8.55
6.95
10.50
14.70
16.65
50,000
400,000
50,000
200,000
16,667
—
—
Options Exercisable
Weighted-Average
Remaining
Contractual
Life
3.07 years
6.75 years
7.19 years
8.84 years
9.32 years
9.37 years
4.47 years
Note 9: 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 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. In addition, there were 56,000 shares remaining to be repurchased under
previous repurchase programs. During the year ended December 31, 2016, the Company repurchased 1,056,000 shares of
common stock for an aggregate purchase price of $9.5 million, which were retired and recorded as a reduction of additional
paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.
In February 2017, the Company announced a stock repurchase program authorizing the repurchase of up to 1,000,000
shares of the Company’s outstanding common stock. During the year ended December 31, 2017, the Company repurchased
1,000,000 shares of common stock for an aggregate purchase price of $9.7 million, which were retired and recorded as a
reduction of additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained
earnings.
In March 2018, 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, 2018, the Company repurchased 500,000
shares of common stock for an aggregate purchase price of $5.3 million, which were retired and recorded as a reduction of
additional paid-in capital until extinguished with the remaining amount reflected as a reduction of retained earnings.
In February 2019, the Company entered into a Stock Repurchase Agreement with Azzurro Capital Inc. (“Azzurro”), a
majority shareholder of the Company and repurchased an aggregate of 100,000 shares of the Company’s common stock for an
aggregate purchase price of $1.5 million.
Note 10: 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 for
making financial decisions and allocating resources. Management believes that segment revenues and operating income are
appropriate measures of evaluating the operational performance of the Company’s segments.
69
The following is a summary of operating results and assets (in thousands) by business segment:
Year Ended December 31, 2018
Revenues from unaffiliated customers
Intersegment revenues
Total net revenues
Operating income (loss)
Year Ended December 31, 2017
Revenues from unaffiliated customers
Intersegment revenues
Total net revenues
Operating income (loss)
Year Ended December 31, 2016
Revenues from unaffiliated customers
Intersegment revenues
Total net revenues
Operating income (loss)
As of December 31, 2018
Long-lived assets
Total assets
As of December 31, 2017
Long-lived assets
Total assets
Asia Pacific
Europe
$
$
$
$
7,869
(10)
7,859
$
(6,322) $
36,468
(319)
36,149
4,973
Asia Pacific
Europe
$
$
$
$
7,553
(34)
7,519
$
(5,967) $
34,034
(353)
33,681
2,290
Asia Pacific
Europe
$
$
$
9,625
$
73
$
9,698
(3,890) $
37,502
(595)
36,907
5,604
Asia Pacific
Europe
$
$
145
3,811
$
$
313
62,942
Asia Pacific
Europe
$
$
140
3,697
$
$
496
54,593
$
$
$
$
$
$
$
$
$
$
$
$
$
North
America
Other
Consolidated
66,985
$
— $ 111,322
329
67,314
—
—
— $ 111,322
9,587
$
— $
8,238
North
America
Other (a)
Consolidated
64,937
$
— $ 106,524
387
65,324
—
—
— $ 106,524
8,222
$
— $
4,545
North
America
Other (a)
Consolidated
67,136
$
— $ 114,263
522
67,658
8,472
$
—
—
— $ 114,263
— $
10,186
North
America
Elimination
Consolidated
3,332
62,433
$
— $
$ (85,762) $
3,790
43,424
North
America
Elimination
Consolidated
4,285
60,246
$
— $
$ (72,864) $
4,921
45,672
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.
70
For the years ended December 31, 2018, 2017 and 2016, the Company did not have any customers that accounted for 10%
or more of revenue. As of December 31, 2018 and 2017, the Company did not have any customers that accounted for 10% or
more of accounts receivable.
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 platform. Local revenue
includes Local Deals vouchers and entertainment offers (vouchers and direct bookings).
Asia Pacific
Travel
Local
Total Asia Pacific revenues
Europe
Travel
Local
Total Europe revenues
North America
Travel
Local
Total North America revenues
Consolidated
Travel
Local
Total revenues
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
$
$
$
7,351
508
7,859
30,856
5,293
36,149
56,145
11,169
67,314
94,352
16,970
111,322
$
$
$
$
$
$
$
$
6,992
527
7,519
29,180
4,501
33,681
53,880
11,444
65,324
90,052
16,472
106,524
$
$
$
$
$
$
$
$
8,845
853
9,698
31,087
5,820
36,907
54,248
13,410
67,658
94,180
20,083
114,263
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 were 10% or more of total revenue (in thousands):
Year Ended December 31,
2018
2017
2016
Revenue
United States
United Kingdom
Germany
Rest of the world
Total revenues
$
$
$
$
$
61,257
21,034
12,257
16,774
111,322
$
$
$
$
$
59,812
19,113
12,226
15,373
106,524
$
$
$
$
$
62,456
22,263
12,576
16,968
114,263
The following table sets forth long lived assets by geographic area (in thousands):
United States
Rest of the world
Total long lived assets
December 31,
2018
2017
$
$
3,035
755
3,790
$
$
3,893
1,028
4,921
71
Note 11: Discontinued Operations
On March 30, 2017, the Company decided to discontinue its Search products, consisting of Fly.com and SuperSearch
products. This decision supports the Company’s strategy to focus on its global Travelzoo® brand. On March 30, 2017, the
Company ceased operations of SuperSearch and on March 31, 2017, the Company sold the Fly.com domain name, which had
no net book value, to a third party. There were no other assets or liabilities transferred as part of this transaction.
A reconciliation of the line items comprising the results of operations of the Search products to the income (loss) from
discontinued operations through the date of disposal presented in the consolidated statements of operations for the years ended
December 31, 2017 and 2016, in thousands, is included in the following table:
Revenues from Search
Cost of revenues
Gross profit
Total operating expenses
Gain on sale of Fly.com domain name
Income from discontinued operations before income taxes
Income tax expense
Income from discontinued operations, net of income taxes
Note 12: Related Party Transactions
Year Ended December 31,
2017
2016
$
2,088
(101)
1,987
(1,817)
2,890
3,060
1,122
1,938
$
14,289
(458)
13,831
(12,949)
—
882
258
624
$
$
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, 2018, Azzurro is the
Company's largest stockholder, holding approximately 50.5% of the Company's outstanding shares.
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.
The Company granted Holger Bartel, Executive Chairman and Chairman of the Board of Directors, 400,000 stock
options that vest through December 31, 2017 on September 28, 2015 and granted 400,000 stock options that vest through
December 31, 2019 on October 30, 2017. See Note 8 to the accompanying consolidated financial statements for further
information. Holger Bartel is the brother of Ralph Bartel.
In April 2018, the Company entered into an agreement with WeekenGO, a start-up company in Germany. The Company
invested $3.0 million in WeekenGO for a 25% ownership interest. WeekenGO signed a $2.1 million insertion order for
advertising with the Company in 2018. The Company’s advertising revenues from WeekenGO in the year ended December 31,
2018 were $319,000.
On February 13, 2019, the Company entered into a Stock Repurchase Agreement (the “SRA”) with Azzurro to repurchase
an aggregate of 100,000 shares of the Company’s common stock for an aggregate purchase price of $1.5 million. The SRA
provides that the purchase price is based on the five (5) day volume weighted average price calculated using the VWAP
function on Bloomberg, from the dates of February 6, 2019 through and including February 12, 2019, minus a five percent
(5%) discount. The Company’s board of directors established a special committee (the “Special Committee”), consisting of
independent and disinterested directors who engaged independent legal counsel and an independent financial advisor, to
authorize the transaction.
72
Note 13: Unaudited Quarterly Information
The following represents unaudited quarterly financial data (in thousands, except per share amounts) for 2018 and 2017:
Quarter Ended
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Product development
General and
administrative
Total operating
expenses
Income from continuing
operations
Other income (loss), net
Income from continuing
operations before income
taxes
Income tax expense
Income (loss) from
continuing operations
Income (loss) from
discontinued operations, net
of income taxes
Net income (loss)
Income (loss) per share—
basic:
Continuing operations
Discontinued operations
Net income (loss) per
share—basic
Income (loss) per share—
diluted:
Continuing operations
Discontinued operations
Net (loss) income per
share—diluted
Dec 31,
2018
Sep 30,
2018
Jun 30,
2018
Mar 31,
2018
Dec 31,
2017
Sep 30,
2017
Jun 30,
2017
Mar 31,
2017
$ 27,062
$ 25,301
$ 28,075
30,884
$ 26,997
$ 24,687
$ 26,411
$ 28,429
2,880
24,182
13,974
1,799
2,987
22,314
3,016
25,059
13,375
2,297
15,628
2,386
3,385
27,499
15,542
2,511
3,462
23,535
3,018
21,669
13,746
2,208
13,973
2,315
3,222
23,189
14,213
2,344
3,207
25,222
15,356
2,357
5,620
5,928
5,967
5,789
6,502
5,363
5,246
5,447
21,393
21,600
23,981
23,842
22,456
21,651
21,803
23,160
2,789
(52)
714
(91)
1,078
30
2,737
1,173
1,564
623
505
118
1,108
631
3,657
161
3,818
1,316
1,079
62
1,141
466
18
86
104
680
1,386
18
1,404
771
2,062
7
2,069
1,209
477
2,502
675
(576)
633
860
—
—
—
—
—
$
1,564
$
118
$
477
$
2,502
$
675
$
—
(576) $
54
687
$
1,884
2,744
$
$
$
$
0.13
$
0.01
$
0.04
$
0.20
$
0.05
$
—
—
—
—
—
(0.05) $
—
0.05
$
—
0.07
0.14
0.13
$
0.01
$
0.04
$
0.20
$
0.05
$
(0.05) $
0.05
$
0.21
0.13
$
0.01
$
0.04
$
0.20
$
0.05
$
—
—
—
—
—
(0.05) $
—
0.05
$
—
0.07
0.14
0.13
$
0.01
$
0.04
$
0.20
$
0.05
$
(0.05) $
0.05
$
0.21
73
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of the Company’s Chief Executive Officer (CEO) and
Principal Accounting Officer (PAO)), as of December 31, 2018, our CEO and PAO have concluded that our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in
U.S. Securities and Exchange Commission (SEC) rules and forms, and that such information is accumulated and communicated
to management, including our CEO and PAO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2018, there were no changes in our internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f)) to provide reasonable assurance regarding the reliability of our financial reporting
and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting
principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018, the end
of our fiscal year. Management based its assessment on criteria established in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that our internal control over financial reporting was effective as
of December 31, 2018 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Our independent registered public accounting firm, PricewaterhouseCoopers LLP, audited the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2018, as stated in the firm’s audit report, which is
included within Part II, Item 8 of this Form 10-K.
/s/ HOLGER BARTEL
Holger Bartel
Global Chief Executive Officer
/s/ LISA SU
Lisa Su
Principal Accounting Officer
March 8, 2019
Item 9B. Other Information
Not applicable.
74
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 2019
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of Travelzoo’s fiscal year ended
December 31, 2018 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 2019 Annual Meeting of Stockholders to be filed with the SEC
within 120 days after the end of our fiscal year ended December 31, 2018, 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 2019 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2018, 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 2019 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2018, which is incorporated herein
by reference.
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
2019 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 PricewaterhouseCoopers LLP - Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
47
49
50
51
52
53
54
(2) Supplementary Consolidated Financial Statement Schedules:
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
75
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
By:
/s/ LISA SU
Lisa Su
Principal Accounting Officer
Date: March 8, 2019
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints Lisa Su 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/ RALPH BARTEL
Ralph Bartel
/s/ LISA SU
Lisa Su
/s/ RACHEL BARNETT
Rachel Barnett
/s/ CARRIE LIQUN LIU
Carrie Liqun Liu
/s/ MARY REILLY
Mary Reilly
/s/ BEATRICE TARKA
Beatrice Tarka
Chairman of the Board of Directors
March 8, 2019
Principal Accounting Officer
March 8, 2019
March 8, 2019
March 8, 2019
March 8, 2019
March 8, 2019
Director
Director
Director
Director
76
Exhibit
Number
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6*
10.7*
10.8*
—
—
—
—
—
—
—
—
—
—
—
EXHIBIT INDEX
Description
Certificate of Incorporation of Travelzoo (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 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. (Incorporated by
reference to Exhibit 3.2 on Form 10-K(File No. 000-50171), filed February
12, 2014)
By-laws of Travelzoo (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)
Agreement of Lease, effective as of February 1, 2008, between Travelzoo
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, 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, 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 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, dated September 28, 2015 between Holger Bartel
and Travelzoo (Incorporated by reference to Exhibit 10.23 on Form 8-K
(File No. 000-50171), filed October 1, 2015)
Nonqualified Stock Option Agreement between Travelzoo and Holger Bartel
dated September 28, 2015. (Incorporated by reference to Exhibit 10.24 on
Form 8-K (File No. 000-50171), filed October 1, 2015)
Security Purchase Agreement, dated August 20, 2015, by and among
Travelzoo (Europe) Limited, and Travelzoo (Asia Pacific) with Exhibits
(Incorporated by reference to Exhibit 10.1 on Form 8-K (File No.
000-50171), filed August 26, 2015)
77
10.9*
10.10*
10.11*
10.12
10.13*
10.14*
10.15
21.1‡
23.1‡
24.1‡
31.1‡
31.2‡
32.1†
32.2†
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Nonqualified Stock Option Agreement between Travelzoo and Holger Bartel
dated October 30, 2017. (Incorporated by reference to Exhibit 10.3 on Form
8-K (File No. 000-50171), filed November 2, 2017)
Employment Agreement, dated October 11, 2012 between Christian
Alexander Smart and Travelzoo (Incorporated by reference to Exhibit 10.3
on Form 10-Q (File No. 000-50171), filed May 10, 2018)
Nonqualified Stock Option Agreement between Travelzoo and Sharry Sun
dated May 14,2018 (Incorporated by reference to Exhibit 10.20 on Form 8-K
(File No. 000-50171), filed May 14, 2018)
Employment Agreement, dated June 28, 2018 between Michael Peterson and
Travelzoo (Incorporated by reference to Exhibit 10.21 on Form 8-K (File
No. 000-50171), filed June 28, 2018)
Nonqualified Stock Option Agreement between Travelzoo and Michael
Peterson dated June 22,2018 (Incorporated by reference to Exhibit 10.21 on
Form 8-K (File No. 000-50171), filed June 28, 2018)
Separation Agreement, dated October 19, 2018 between Michael Stitt and
Travelzoo
Stock Repurchase Agreement, dated February 13, 2019, between Travelzoo
and Azzurro Capital Inc. on Form 8-K (File No. 000-50171), filed
February 13, 2019)
Subsidiaries of Travelzoo
Consent of PricewaterhouseCoopers LLP, 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
78
101.INS‡
101.SCH‡
101.CAL‡
101.DEF‡
101.LAB‡
101.PRE‡
—
—
—
—
—
—
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
79
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
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