Travelzoo 2021 Form 10-K Summary
Business context and reporting period
Travelzoo is a global Internet media company providing travel, entertainment and local deals through websites, email, mobile applications, social media and the Travelzoo Network. It also owns 60% of Jack’s Flight Club, a paid flight-deal subscription service. This filing covers the fiscal year ended December 31, 2021, not a standalone fourth quarter.
Travelzoo had approximately 30.3 million members at year-end, including 17.2 million in North America, 8.4 million in Europe and 1.8 million Jack’s Flight Club subscribers. North America generated 67% of revenue, Europe 28% and Jack’s Flight Club 5%. Asia Pacific operations were exited in 2020 and are presented as discontinued operations.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $62.7 million | $53.6 million | 17% increase |
| Gross profit | $51.3 million | $43.0 million | 19% increase |
| Gross margin | 81.8% | 80.3% | 150 basis-point increase |
| Operating loss | $1.3 million | $14.1 million | Significant improvement |
| Income from continuing operations | $0.9 million | $(11.2) million | Returned to profitability |
| Net income attributable to Travelzoo | $0.9 million | $(13.4) million | Improvement of $14.3 million |
| Diluted earnings per share | $0.07 | $(1.18) | Improved |
| Net cash used in operating activities | $(8.1) million | $47.0 million provided | Material deterioration |
Cost of revenues was $11.4 million, or 18.2% of revenue, compared with $10.6 million, or 19.7%, in 2020. Sales and marketing expense declined slightly to $30.3 million, product development expense declined to $2.6 million, and general and administrative expense declined to $19.8 million. No impairment charge was recorded in 2021, compared with a $2.9 million Jack’s Flight Club goodwill and trade-name impairment in 2020.
Other income was $4.0 million, including a $3.6 million gain from forgiveness of PPP loans. Income tax expense was $1.8 million, producing a 66% effective tax rate. Stock-based compensation was $3.7 million.
Revenue and segment developments
- North America revenue increased 20% to $42.0 million, primarily from higher Top 20 and Newsflash revenue and increased Local Deals voucher sales. Segment operating income was $0.6 million versus a $5.1 million loss.
- Europe revenue increased 14% to $17.3 million, helped by higher Getaways and Local Deals voucher sales and favorable foreign exchange. The segment operating loss narrowed to $2.0 million from $6.2 million.
- Jack’s Flight Club revenue declined 5% to $3.3 million, but the segment generated $0.1 million of operating income versus a $2.8 million loss, principally because 2020 included impairment charges.
- Travel revenue was $54.0 million and Local revenue was $5.4 million. No customer represented 10% or more of total revenue.
Liquidity, debt and capital resources
At December 31, 2021, cash and cash equivalents were $43.8 million, including $24.0 million held outside the United States, and restricted cash was $1.1 million. Cash, cash equivalents and restricted cash declined $19.4 million during 2021 to $45.0 million.
The Company had negative working capital of $22.8 million, principally because $68.7 million of merchant payables related to unredeemed vouchers was classified as current. The payables are generally settled when vouchers are redeemed; most related vouchers expire in 2022, with the remainder primarily expiring in 2023, although expiration dates may be extended.
PPP borrowings were fully forgiven or repaid in 2021, and management stated that the Company had no outstanding debt and expected cash on hand to fund operations for at least the next twelve months. The filing nevertheless notes that accelerated voucher redemptions, higher refunds, operating losses or weaker cash flows could require additional financing.
Financing cash use was $11.2 million, including $5.5 million for stock repurchases and net share settlement taxes. The Company repurchased 395,029 shares under its program and 100,000 shares from an executive. It does not expect to pay dividends for the foreseeable future.
Material changes, outlook and unusual items
- Results improved as travel and advertising activity began recovering from the COVID-19 disruption. Management expects revenue and net income to increase in 2022 as travel conditions improve, but provided no specific quantitative guidance.
- The Company continued offering fully refundable vouchers through expiration or redemption. At year-end, unredeemed vouchers represented approximately $17.2 million of Travelzoo commission revenue, with a $5.2 million estimated refund liability and $68.7 million of merchant payables.
- Revenue recognition and refund reserves were identified as critical audit matters because of automated transaction systems and significant assumptions regarding redemption and refund activity.
- In January 2022, the German business received approximately $1.2 million of government pandemic funding, expected to be recorded as other income in the first quarter of 2022.
- In March 2022, the Company acquired Secret Escapes’ Spanish business unit for €0.4 million, plus a potential €0.1 million earn-out, including approximately 940,000 members.
- In March 2022, the Company entered into related-party transactions involving Metaverse Travel Experiences and acquired certain U.S. member assets from an affiliate of its largest shareholder for $1.75 million.
- COVID-19 recovery remains uncertain. Key risks include travel restrictions and variants, voucher refunds and redemptions, advertiser failures, intense competition, privacy and data-security regulation, foreign exchange, tax exposure and reliance on email, mobile platforms, search engines and third-party technology.
Most important facts for investors to verify
- Whether operating cash flow turns positive as voucher redemptions, refunds and merchant-payable settlements accelerate.
- Whether the $68.7 million merchant-payable balance and $5.2 million refund reserve adequately reflect future cash obligations.
- Whether travel advertising recovery supports sustained revenue growth without materially higher member-acquisition costs.
- Whether the 2022 outlook is supported by reported quarterly revenue, profitability and cash-flow results; the filing provides no specific numerical guidance.
- The financial and governance effects of related-party licensing, service and asset-purchase transactions involving Azzurro affiliates.
- The potential impact of unrecognized tax benefits, lease commitments of $16.3 million, voucher-related legal requirements and other contingencies.