Travelzoo Reports Second Quarter 2014 Results

  Travelzoo Reports Second Quarter 2014 Results  Business Wire  NEW YORK -- July 17, 2014  Travelzoo Inc. (NASDAQ:TZOO):    *Revenue of $36.9 million, down 11% year-over-year   *Operating profit of $10.1 million, up 30% year-over-year   *Non-GAAP earnings per share of $0.30, compared to $0.34 in the prior-year     period   *Cash used in operations of $509,000  Travelzoo Inc., a global Internet media company, today announced financial results for the second quarter ended June30, 2014, with revenue of $36.9 million, a decrease of 11% year-over-year. Net income was $7.9 million, with earnings per share of $0.54. Non-GAAP net income was $4.4 million, with non-GAAP earnings per share of $0.30. Non-GAAP net income and non-GAAP earnings per share exclude a $3.5 million release of reserve for Travelzoo Inc.'s anticipated settlement agreements in connection with a dispute over unclaimed property audits.  "In North America, our revenues declined due to lower Local and Search revenues, as previously announced. In Europe, our revenues and operating income increased. Europe contributed 43% of our operating income this quarter," said Chris Loughlin, chief executive officer. "We continue to invest in mobile products and in our new hotel booking platform."  North America  North America business segment revenue decreased 17% year-over-year to $25.2 million. Non-GAAP operating profit for the second quarter was $3.8 million, or 15% of revenue, down from $5.9 million, or 20% of revenue, in the prior-year period.  Europe  Europe business segment revenue increased 6% year-over-year to $11.7 million. In local currency terms, revenue decreased 4% year-over-year. Non-GAAP operating profit for the second quarter was $2.9 million, or 24% of revenue, up from $1.9 million, or 17% of revenue in the prior-year period.  Subscribers  Travelzoo had a total unduplicated number of subscribers in North America and Europe of 23.7 million as of June30, 2014, up 3% from June30, 2013. In North America, total unduplicated number of subscribers was 16.7 million as of June30, 2014, up 2% from June30, 2013. In Europe, total unduplicated number of subscribers was 7.0 million as of June30, 2014, up 6% from June30, 2013.  Update on Hotel Booking Platform  Travelzoo began testing its new hotel booking platform in North America in April on desktop and in June on mobile. In the second quarter, the booking engine was presented to a limited number of Travelzoo subscribers. Booking revenue is recognized upon stay, which is typically 40 to 50 days after the booking occurs.  Income Taxes  Income tax expense was $2.3 million, compared to $2.7 million in the prior-year period. The effective income tax rate, as calculated on the basis of non-GAAP income before taxes, was 34%, consistent with prior-year period.  Asset Management  During the second quarter of 2014, Travelzoo used $509,000 of cash from operating activities primarily due to new terms with Local Deals merchants which resulted in faster payments. Accounts receivable increased by $1.1 million over the prior-year period to $16.5 million. Accounts payable decreased by $4.8 million over the prior-year period to $24.1 million. Capital expenditures were $405,000, down from $1.2 million in the prior-year period. As of June30, 2014, cash and cash equivalents were $60.5 million.  Non-GAAP Information  To give an enhanced view of Travelzoo's operating performance, management has calculated non-GAAP operating expense, non-GAAP North America operating profit, non-GAAP operating profit, non-GAAP operating margin, non-GAAP effective tax rate, non-GAAP net income and non-GAAP earnings per share by excluding the release of reserve related to our unexchanged promotional shares. The company believes these metrics assist investors to assess certain business trends in the same way that these trends are analyzed by management. The discussion of these non-GAAP metrics are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial information. As the only difference between GAAP and non-GAAP information is the release of reserve related to our unexchanged promotional shares, today’s reporting should not be viewed as Travelzoo’s intention to report non-GAAP information in future periods. Refer to the “Reconciliation of GAAP to Non-GAAP Information” section of this press release for important information.  Conference Call  Travelzoo will host a conference call to discuss second quarter results at 11:00 a.m. ET today. Please visit http://www.travelzoo.com/earnings to    *download the management presentation (PDF format) to be discussed in the     conference call;   *access the webcast.  About Travelzoo  Travelzoo Inc. is a global Internet media company. With more than 27million subscribers in North America, Europe, and Asia Pacific and 25 offices worldwide, Travelzoo® publishes deals from more than 2,000 travel and entertainment companies. Travelzoo’s deal experts review offers to find the best deals and confirm their true value. In Asia Pacific, Travelzoo is independently owned and operated by Travelzoo (Asia) Ltd. and Travelzoo Japan K.K. under a license agreement with Travelzoo Inc.  Certain statements contained in this press release that are not historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include, but are not limited to, statements about our plans, objectives, expectations, prospects and intentions, markets in which we participate and other statements contained in this press release that are not historical facts. When used in this press release, the words “expect”, “predict”, “project”, “anticipate”, “believe”, “estimate”, “intend”, “plan”, “seek” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including changes in our plans, objectives, expectations, prospects and intentions and other factors discussed in our filings with the SEC. We cannot guarantee any future levels of activity, performance or achievements. Travelzoo undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release. Travelzoo and Top 20 are registered trademarks of Travelzoo. All other names are trademarks and/or registered trademarks of their respective owners.   Travelzoo Inc. Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)                                                                                       Three months ended        Six months ended                                June 30,                  June 30,                                2014        2013         2014        2013 Revenues                       $ 36,883     $ 41,327     $ 77,078     $ 83,504 Cost of revenues               4,374       4,425       9,151       8,411 Gross profit                   32,509      36,902      67,927      75,093 Operating expenses: Sales and marketing            15,305       19,457       33,148       39,115 General and administrative     10,570       9,651        21,148       20,149 Unexchanged promotional        (3,500   )   —           (3,500   )   — shares Total operating expenses       22,375      29,108      50,796      59,264 Income from operations         10,134       7,794        17,131       15,829 Other income                   56          112         177         144 Income before income taxes     10,190       7,906        17,308       15,973 Income taxes                   2,266       2,706       4,747       5,178 Net income                     $ 7,924     $ 5,200     $ 12,561    $ 10,795 Net income per share:                                            Basic                          $ 0.54      $ 0.34      $ 0.85      $ 0.70 Diluted                        $ 0.54      $ 0.34      $ 0.84      $ 0.70 Weighted average shares: Basic                          14,734       15,362       14,806       15,362 Diluted                        14,794       15,457       14,881       15,427                                                                          Travelzoo Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands)                                                                                                                June 30,           December 31,                                                2014               2013 Assets Current assets: Cash and cash equivalents                      $    60,502     $  66,223 Accounts receivable, net                       16,529             13,986 Income taxes receivable                        2,015              2,656 Deposits                                       287                396 Prepaid expenses and other current assets      2,066              3,202 Deferred tax assets                            1,216              1,143 Restricted cash                                —                  200 Funds held for reverse/forward stock split     199               13,668      Total current assets                           82,814             101,474 Deposits                                       1,183              1,168 Deferred tax assets                            2,476              2,032 Restricted cash                                1,478              1,479 Property and equipment, net                    9,668              8,245 Intangible assets, net                         298               404         Total assets                                   $    97,917    $  114,802  Liabilities and Stockholders’ Equity Current liabilities: Accounts payable                               $       24,108     $  31,766 Accrued expenses and other                     9,100              10,824 Deferred revenue                               1,801              1,578 Income tax payable                             1,699              — Reserve for unexchanged promotional shares     8,000              12,726 Payable to shareholders for reverse/forward    199               13,668      stock split Total current liabilities                      44,907             70,562 Long-term tax liabilities                      10,660             10,436 Long term deferred rent and other              3,419             2,469       Total liabilities                              58,986            83,467      Common stock                                   163                163 Treasury stock                                 (21,517        )   (15,662    ) Additional paid-in capital                     11,037             10,247 Accumulated other comprehensive loss           (83            )   (530       ) Retained earnings                              49,331            37,117      Total stockholders’ equity                     38,931            31,335      Total liabilities and stockholders’ equity     $    97,917    $  114,802                                                                          Travelzoo Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)                                                                                   Three months ended        Six months ended                              June 30,                 June 30,                              2014        2013         2014        2013 Cash flows from operating activities: Net income                   $ 7,924      $ 5,200      $ 12,561     $ 10,795 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and             640          760          1,342        1,476 amortization Impairment of software       249          —            249          — Deferred income taxes        (584     )   207          (508     )   400 Stock-based compensation     395          307          790          613 Provision for losses on      41           (45      )   (11      )   50 accounts receivable Net foreign currency         (6       )   19           (36      )   112 effects Changes in operating assets and liabilities: Accounts receivable          (1,123   )   (91      )   (2,411   )   (2,127   ) Deposits                     27           175          160          20 Income tax receivable        (717     )   2,029        549          3,593 Prepaid expenses and other   60           (1,382   )   564          (1,032   ) current assets Accounts payable             (4,350   )   1,965        (7,389   )   845 Accrued expenses and other   (740     )   263          (1,920   )   485 Income tax payable           1,061        467          1,783        1,038 Reserve for unexchanged      (3,500   )   —            (4,726   )   — promotional shares Other non-current            114         107         225         210       liabilities Net cash provided by (used   (509     )   9,981       1,222       16,478    in) operating activities Cash flows from investing activities: Release (purchase) of        —            (263     )   200          (263     ) restricted cash Purchases of property and    (405     )   (1,209   )   (1,424   )   (2,109   ) equipment Net cash used in investing   (405     )   (1,472   )   (1,224   )   (2,372   ) activities Cash flows from financing activities: Repurchase of common stock   (287     )   —            (5,855   )   — Reverse/forward stock split, including             —           —           (479     )   —         transaction costs Net cash used in financing   (287     )   —           (6,334   )   —         activities Effect of exchange rate on   668         (235     )   615         (1,894   ) cash and cash equivalents Net increase (decrease) in   (533     )   8,274        (5,721   )   12,212 cash and cash equivalents Cash and cash equivalents    61,035      65,107      66,223      61,169    at beginning of period Cash and cash equivalents    $ 60,502    $ 73,381    $ 60,502    $ 73,381  at end of period Supplemental disclosure of cash flow information: Cash paid for income         $ 2,508      $ 10         $ 2,843      $ 20 taxes, net                                                                          Travelzoo Inc. Segment Information (Unaudited) (In thousands)                                                               Three months    North                               Elimination ended June      America            Europe           and Other     Consolidated 30, 2014                                            (a) Revenue from unaffiliated    $    25,175     $   11,708     $  —          $   36,883 customers                                                                    Intersegment    302               129             (431      )   — revenue Total net       25,477            11,837          (431      )   36,883 revenues Operating       $    3,771     $   2,863     $  3,500     $   10,134 income Three months    North                               Elimination ended June      America            Europe           and Other     Consolidated 30, 2013 Revenue from unaffiliated    $       30,249     $     11,078     $  —          $   41,327 customers Intersegment    331               222             (553      )   — revenue Total net       30,580            11,300          (553      )   41,327 revenues Operating       $    5,899     $   1,895     $  —         $   7,794 income                                                                    Six months      North                               Elimination ended June      America            Europe           and Other     Consolidated 30, 2014                                            (a) Revenue from unaffiliated    $       51,528     $     25,550     $  —          $   77,078 customers Intersegment    716               141             (857      )   — revenue Total net       52,244            25,691          (857      )   77,078 revenues Operating       $    8,375     $   5,256     $  3,500     $   17,131 income Six months      North                               Elimination ended June      America            Europe           and Other     Consolidated 30, 2013 Revenue from unaffiliated    $       60,160     $     23,344     $  —          $   83,504 customers Intersegment    575               330             (905      )   — revenue Total net       60,735            23,674          (905      )   83,504 revenues Operating       $    11,382    $   4,447     $  —         $   15,829 income                                                                               Includes a $3.5 million release of reserve for the three and six months (a)  ended June 30, 2014 related to anticipated settlement agreements in       connection with a dispute over unclaimed property audits.          Travelzoo Inc. Reconciliation of GAAP to Non-GAAP Information (Unaudited) (In thousands, except per share amounts)                                                                                                                                     Three months ended         Six months ended                            June 30,                   June 30,                            2014          2013         2014          2013 GAAP operating expense     $ 22,375      $ 29,108     $ 50,796      $ 59,264 Unexchanged promotional    (3,500   )    —           (3,500   )    —         shares (a) Non-GAAP operating         $ 25,875      $ 29,108     $ 54,296      $ 59,264 expense                                                                      GAAP operating income      $ 10,134      $ 7,794      $ 17,131      $ 15,829 Unexchanged promotional    (3,500   )    —           (3,500   )    —         shares (a) Non-GAAP operating         $ 6,634       $ 7,794      $ 13,631      $ 15,829 income                                                                      GAAP operating margin      27.5     %    18.9     %   22.2     %    19.0     % Unexchanged promotional    (9.5     )%   —        %   (4.5     )%   —        % shares (a) Non-GAAP operating         18.0     %    18.9     %   17.7     %    19.0     % margin                                                                      GAAP effective tax rate    22.2     %    34.2     %   27.4     %    32.4     % Unexchanged promotional    11.6     %    —        %   7.0      %    —        % shares (a) Non-GAAP effective tax     33.8     %    34.2     %   34.4     %    32.4     % rate                                                                      GAAP net income            $ 7,924       $ 5,200      $ 12,561      $ 10,795 Unexchanged promotional    (3,500   )    —           (3,500   )    —         shares (a) Non-GAAP net income        $ 4,424       $ 5,200      $ 9,061       $ 10,795                                                                      Earnings per share         $ 0.54        $ 0.34       $ 0.84        $ 0.70 Unexchanged promotional    (0.24    )    —           (0.24    )    —         shares (a) Non-GAAP earnings per      $ 0.30        $ 0.34       $ 0.60        $ 0.70 share                                                                               Includes a $3.5 million release of reserve for the three and six months (a)  ended June 30, 2014 related to anticipated settlement agreements in       connection with a dispute over unclaimed property audits.         Contact:  Media: Travelzoo Inc. Glen Ceremony, +1 212-484-4998 Chief Financial Officer pr@travelzoo.com  
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